Scoffing at Sanctions, Livin’ the Good Life

   Grab My Burger at Uncle Vanya’s

 No More Italian Beaches, but…

Russia’s Tornado-S

Russia is a strange mix of a resource extraction driven economy laced with Western style consumerism. There are an awful lot of millionaires and billionaires in Russia still, and while the average worker in that country makes about $200/week – sorry Tucker Carlson, that’s why basic commodities are so cheap there – Russia is a nation that has learned to survive under the harshest of times. The Nazis tried to crush her and starve her people out in WWII, only to see the tables turned on Hitler’s forces as winter and Marshall Zhukov’s “burn all the farms and retreat” decimated the attackers. Today, as an OPEC+ oil and gas producer (on par with Saudi Arabia), Russia has also learned how to nullify the harshest aspects of Western retribution: sanctions.

“The United States and the European Union are piling new sanctions on Russia on the eve of the second anniversary of its invasion of Ukraine and in retaliation for the death of noted Kremlin critic Alexei Navalny last week in an Arctic penal colony… The U.S. Treasury, State and Commerce departments plan to impose roughly 600 new sanctions on Russia and its military apparatus in the largest single tranche of penalties since Russia’s invasion of Ukraine on Feb. 24, 2022. They come on the heels of a series of new arrests and indictments announced by the Justice Department on Thursday [2/22] that target Russian businessmen, including the head of Russia’s second-largest bank, and their middlemen in five separate federal cases.

“The European Union announced Friday [2/23] that it is imposing sanctions on several foreign companies over allegations that they have exported dual-use goods to Russia that could be used in its war against Ukraine. The 27-nation bloc also said that it was targeting scores of Russian officials, including ‘members of the judiciary, local politicians and people responsible for the illegal deportation and military re-education of Ukrainian children.’” Associated Press, February 24th. But unless you are fighting on the Ukrainian front, life for Russians today is still very good.

When Western companies were forced to leave Russia as part of post-Ukraine invasion sanctions – happy second anniversary of that effort – Russia seemed to shrug a massive “whatever” and found ways to continue simply by taking over those companies and relabeling them. Leisurely vacations on the French or Italian Riviera were replaced by beachin’ it up at fellow OPECer’s, Dubai’s, pristine shores. Certainly, most rich Russians were only mildly inconvenienced.

But what really hit Russia hard at first were the sanctions that limited her oil and gas exports and denied her access to the banking and currency exchanges, marked by SWIFT/BIC code interbank transactions, which literally controlled global trade. Which, from Russia’s perspective, were US dominated financial structures. So, Russia, with a lot of help from her new anti-US coalition superpower buddy, China, figured out how to export her oil and gas and continue international trade with a set of SWIFT/BIC code-Western boycott alternative workarounds. The February 24th Wall Street Journal tells us how:

“After Russia’s trade with Europe cratered, China became Russia’s economic lifeline. Trade turnover between the two countries hit a record $240 billion last year. Moscow sold China its oil that used to go to Germany and France. It massively stepped up purchases of Chinese goods for consumers and parts that go into weaponry…

“Russia’s use of the Chinese yuan has overtaken the U.S. dollar in its exports. For years Moscow had tried to de-dollarize its economy, without much success because most global commodity trade runs on the U.S. dollar. But Western sanctions and booming Russian energy exports to China have added to the yuan’s appeal. Payments in Chinese yuan for Russian exports have jumped to around one-third of the total. Meanwhile, Russian companies are increasingly borrowing in yuan while households are stashing savings in it…

“Before the war, Russian oil and gas powered Europe’s factories and heated its homes, and provided much of Moscow’s budget proceeds. The European Union’s ban on most Russian oil and Moscow’s decision to halt the bulk of its gas exports to the bloc have rearranged the global energy map.

“Half of Russia’s oil and petroleum exports in 2023 went to China, Moscow has said. India has also emerged as a big buyer as Russia has been forced to offer its oil at a discount to global prices because of a G-7 price cap. Moscow has used a network of tankers not owned by Western countries or insured by Western companies to bypass sanctions, with analysts estimating that more than half of Russia’s seaborne oil is now transported with this shadow fleet…

“Despite Western sanctions, Moscow has acquired a third of its foreign-sourced battlefield components from companies based in the U.S., Europe or their allies, according to an analysis by the Kyiv School of Economics. Most of the components found in Russian weaponry then end up being of Western origin, according to the analysis.

“Russian companies have used an intricate supply chain through which computer chips and other dual-use items are designed in the West, manufactured in places such as China and the Philippines, sold via Hong Kong and shipped to Russia… Such items then end up on Ukrainian battlefields in Russian weaponry such as the Tornado-S, a multiple-launch rocket launcher, as well the Kinzhal, a Russian hypersonic air-launched ballistic missile.”

It is a sad commentary how our pattern of sanctions work for smaller nations and even superpowers… just for a while… but those superpowers with their massive trade capacity have always known how to create financial alternatives that ultimately circumvent those sanctions and create new trade structures that permanently dilute the traditional power of US/Western global financial institutions… and even threaten the ability of the United States to maintain the US dollar as the most significant reserve currency.

That Sino-Russian cabal is not the only beneficiary of these workarounds; North Korea, Iran and Syria are lapping up these alternatives. Not to mention that many significant non-aligned nations operate in both the dollar-based and yuan-based financing structures. And that is a major threat to the stability of the US economy, although the MAGA GOP is already instituting an internal Great American Unraveling on its own.

I’m Peter Dekom, and I guess that relegates two national security and financial stability alternatives as our best choices to contain Russia and China: military support for both Ukraine and Taiwan.