Will These Economic Sanctions On Russia Backfire?

Biden and the EU have put on a brave face and stated they would help Ukraine as much as possible. The recent Biden actions will harm the world, not only Russia. Let’s start with the SWIFT sanctions.

SWIFT, Society for Worldwide Interbank Financial Telecommunication. It is a message system for banks, allowing them to communicate the crucial financial information required to pay invoices or wire money from one person to another.

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The big West cut off Russian banks’ access to SWIFT. It means that people who want to buy Russian exports can’t pay in dollars. Except the SWIFT sanctions weren’t imposed on those Russian banks that receive payments from the US and Europe for oil. It’s a sham sanction.

There are additional alternatives:

  • CIPS – sponsored by China, for trade-related deals in the Chinese currency with Chinese clearing banks[57]
  • SFMS – sponsored by India
  • SPFS – sponsored by Russia, mostly composed of Russian banks

Market Place reported:

David Brancaccio: So, an alternative for Russia could be China’s cross-border interbank payment system, acronym CIPS. How’s it work?

Jennifer Pak: China’s CIPS connects participants inside China and out to do trade or investment and then settle those transactions using Chinese yuan.

Brancaccio: Well, How’s it different from the SWIFT global payment system based in Belgium?

Pak: Right. So let’s say I sell you shoes. Normally, you’d reach for PayPal to settle it in U.S. dollars, right? But instead, you could use CIPS and pay me in Chinese yuan. And it actually relies heavily on SWIFT’s financial messaging services. So you can think of CIPS as being enhanced by SWIFT rather than working against it.

Brancaccio: But in the Chinese currency, that’s key. What kinds of institutions currently use the CIPS system?

Pak: Well, CIPS says they have roughly 1,100 financial institutions from 100 countries, but they’re mostly from China, and also ones from Russia.

Many analysts think CIPS is a pipe dream. Check this out:

Industrial and Commercial Bank Of China Ltd. (IDCBY)

  • Revenue (TTM): $123.6B
  • Net Income (TTM): $45.3B
  • Market Cap: $231.8B
  • 1-Year Trailing Total Return: -6.9%
  • Exchange: OTC

The largest bank in the world in terms of total assets under management (AUM) is the Industrial and Commercial Bank Of China Ltd. This institution provides credit cards and loans, financing for businesses, and money management services for companies and high net worth individuals. Though this is a commercial bank, it is state-owned.

China Construction Bank Corp. (CICHY)

  • Revenue (TTM): $102.2B
  • Net Income (TTM): $38.7B
  • Market Cap: $196.6B
  • 1-Year Trailing Total Return: -3.7%
  • Exchange: OTC

The second Chinese bank on our 10 biggest list is China Construction Bank Corp. It provides corporate banking services such as e-banking, credit lines, and commercial loans. China Construction Bank also provides personal banking through a separate segment, offering personal loans, deposits, wealth management, and credit cards.

Agricultural Bank of China Ltd. (ACGBY)

  • Revenue (TTM): $89.7B
  • Net Income (TTM): $30.9B
  • Market Cap: $131.5B
  • 1-Year Trailing Total Return: -14.1%
  • Exchange: OTC

Agricultural Bank of China is state-owned institution that provides not only personal and corporate banking services, but it also offers a special suite of products for agricultural customers such as small farming operations and larger agricultural wholesale companies.

Bank Of China Ltd. (BACHF)

  • Revenue (TTM): $79.4B
  • Net Income (TTM): $27.2B
  • Market Cap: $109.1B
  • 1-Year Trailing Total Return: -12.7%
  • Exchange: OTC

Bank Of China focuses primarily on commercial banking activities such as deposits and withdrawals, and foreign exchange. The bank also is even licensed to issue banknotes in Hong Kong and Macau.

These banks will develop a closer relationship with Russia than the one that exists. Russia maybe isn’t a huge market, but it gives critical commodities. The US buys 7% of its oil from Russia, EU purchases even more.

Also, Russia has refined nickel, it isn’t the largest producer of nickel in the world, but it’s the largest producer of refined nickel.

Tyler Durden at Zerohedge reported.

This self-imposed embargo which has effectively halted a majority of Russian oil shipments, threatens to drive up energy prices globally by removing a gusher of oil from a market that was tight even before the Russian invasion of Ukraine. Meanwhile, Russia, waging war and in need of revenue with its financial system in turmoil, is taking extreme steps to convince companies to buy its most precious commodity. . . .

“The market is starting to fail,” a trader at a major commodities trading house told the WSJ, which is a problem because with Russia exporting roughly 5 mmb/d, the oil market – already extremely tight – could find itself in a historic supply shortage in just a few days, and will need massive demand destruction, read much, much higher oil prices, to stabilize as Goldman wrote over the weekend. . . .

As a result of these sanctions, and fears that a full-blown embargo on Russian oil output will soon follow, energy buyers have balked at the prospect of using the existing “loophole” worried that in just a few days they may be stuck with billions in Russian oil they can’t sell. As a result the entire Russian oil supply chain is collapsing.

Which is not to say there are no buyers left: as prices for Russian crude tanked last week, companies in India vacuumed up around seven million barrels of Urals oil, but even there companies are taking steps to limit sanctions risk according to the WSJ.

Russia won’t collapse if Europe and America don’t help them. They have the Chinese:

Bloomberg reported:

Russia forged new long-term supply deals with China as the Kremlin aims to strengthen ties with the Asian nation amid souring relations with the West.

Energy giants Gazprom PJSC and Rosneft PJSC signed agreements with the world’s largest energy consumer as President Vladimir Putin met his Chinese counterpart Xi Jinping in Beijing ahead of the Winter Olympics.

Gazprom signed its second long-term gas deal with China National Petroleum Corp. Under the agreement, the producer will deliver 10 billion cubic meters per year over 25 years via a new pipeline from Russia’s Far East.

Rosneft reached an agreement to deliver 100 million tons of crude oil to CNPC via Kazakhstan within 10 years, following the expiration of a similar contract next year. The volumes will be used as feedstock for refineries in China’s north-west, Rosneft said in a statement.

Source

The Gateway Pundit Bloomberg Zero Hedge Investopedia Market Place

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