WASHINGTON (AP) – Severe sanctions imposed regarding Russia and the subsequent collapse of the ruble, the Kremlin is struggling to sustain the country’s economy. For Vladimir Putin, this means finding solutions to the Western economic blockade, even as his forces continue to invade Ukraine.
Former Treasury officials and sanctions experts expect Russia to try to mitigate the impact of the financial sanctions by relying on energy sales and relying on the country’s gold and Chinese currency reserves. Putin is also expected to transfer funds through smaller banks and accounts to elite families not covered by the sanctions, trade in cryptocurrency and rely on Russia’s relations with China.
At the moment, the two biggest opportunities Russia has are China and energy, said John Smith, a former director of the Treasury Department’s financial intelligence and law enforcement department.
The United States and the EU have imposed sanctions on Russia’s largest banks and its elite, frozen the country’s central bank assets outside the country and excluded its financial institutions from SWIFT’s messaging system, but have largely allowed its oil and natural resources gas to continue to flow freely to the rest of the world.
While Russia is likely to move closer to China to make up for lost supplies of goods and services it usually receives from the West, Smith said, “they also bet that their huge energy supplies will continue to be sought after, especially during this cold winter. There is a much greater profit from their energy if they can bring it to market. “
Last month, Russia and China signed a 30-year agreement that will allow Russia to supply gas to China, although the pipelines will not be completed for at least three years. In addition, China announced last week that it would allow imports of wheat from all parts of Russia for the first time.
However, Smith said the Chinese and others “will make incredibly difficult deals” now that Russia has fewer willing buyers and China will want to avoid secondary sanctions or breaches of sanctions.
On Monday, the United States further tightened its sanctions to immobilize all assets of the Russian central bank in the United States or held by Americans. The Biden administration estimates that the move could affect hundreds of billions of dollars in Russian funding.
Recent measures include unbundling, which allows energy-related transactions with the bank. The sanctions also have no effect on Russia’s gold reserves, which Putin has been building up for several years.
Tyler Kustra, a political science assistant at the University of Nottingham who studies economic sanctions, said Moscow had already adopted a “fortress economy of Russia” – producing many goods in the domestic market, even if it was easier to import – to protect the economy from sanctions.
Much of Russia’s food is produced locally, but some does not match similar foreign products, while others cannot be replaced, he said.
“My friends in Moscow say, ‘Look, they’ve never made cheese,'” Kustra said.
Increased reliance on cryptocurrency will be an inevitable way for Russia to try to sustain its financial transactions, said David Shaconi, a professor of political science at George Washington University, “but it is unlikely to serve as a substitute for corporate transactions over time.”
While about 80 percent of Russia’s financial transactions in the past have been in dollars, federal law enforcement and Treasury officials are stepping up efforts to “aggressively combat” the misuse of cryptocurrency to evade sanctions, according to a White House official who he was not authorized to comment publicly and speak on condition of anonymity.
The official would not comment on whether the Biden administration is considering targeting Russian-based cryptocurrencies for sanctions.
The administration has experience in regulating the Russian crypto business. Earlier this year, the finance ministry sanctioned Russia’s Russia-based SUEX and 25 related cryptocurrency companies that blacklist the dollar from the dollar’s financial system for allegedly helping criminal hackers clean up and cash their loot. This was the first crypto business to receive this designation.
Ari Redboard, a former senior adviser to the Treasury who heads government affairs at TRM, which is developing financial crime analysis, among other things, said his organization has identified at least 340 businesses in Russia that could potentially be used as an “on and off” for cryptocurrency.
Redboard said that because of the breadth of sanctions, the amount of cryptocurrency Russia will need to replace the billions of sanctions “will be very difficult to switch to a traditional currency.”
Ori Lev, who served as head of law enforcement at the Treasury Department during the Obama administration, said that in general, “whether he uses cryptocurrency or relies on China, there are mitigating actions he can take. but they cannot recreate a financial system. “
The Biden administration says China will not be able to compensate for the loss of American and European business, and that sanctions cutting Russia off Western sovereign debt markets will be crippling. At the same time, the White House has tried to argue publicly that Beijing’s arrival to save Moscow could be detrimental in the long run to China’s reputation in Europe and around the world.
By Monday afternoon, the ruble had fallen and Russians were queuing for ATMs for hours as fears of inflation erupted.
“I don’t know exactly what steps they will take to mitigate the bite of sanctions, but that will not lift them,” Lev said.
___
Associated Press authors Aamer Madhani, Alan Sutherman of Richmond, Virginia and Kelvin Chan in London contributed to the report.