Research & Insights #27

#Sanctions – Have economic sanctions against Russia failed?

More than a year after the adoption of massive sanctions against Russia, economist Jacques Sapir assesses their effects from an economic and political point of view. While they have led to an economic recession in Russia, they have not succeeded in changing the government’s policy in Ukraine or in overthrowing Vladimir Putin. Europe is also negatively impacted by this policy, particularly in the agriculture and energy sectors due to countermeasures imposed by Moscow. Sapir states that economic sanctions “are proving to be the catalyst for a process of de-Westernization of the world and a major loss of influence, political, economic, but also cultural, of this Western bloc. This trend was already present before the conflict and the use of sanctions. But it may have changed in nature with the war and the sanctions”, he adds. The author argues that economic sanctions are often used as a political weapon by Western countries to pressure countries that do not follow their agenda, but they are rarely effective in the long run.

#CentralBank – Where are the foreign exchange reserves of the Russian Central Bank?

As a result of the Russian-Ukrainian conflict, the G7 countries announced the freezing of Russia’s foreign exchange reserves. These assets represent the highly liquid foreign assets available to the Russian government. It was estimated at the time, based on reports from the Russian Central Bank, that approximately US$300 billion in assets were held in Europe and would be frozen by the EU. However, the European Commission was unable to assess the amount of funds held by the Russian institution. The EU judicial authorities admitted that they were unable to trace most of the money. At the end of January 2023, EU countries reported that they had gotten their hands on only US$36.4 billion in assets. Swiss authorities just announced that they had been able to freeze the equivalent of US$8.3 billion. Discussions continue within the EU on whether these assets should be permanently confiscated and used for the reconstruction of Ukraine. Under international law, a government cannot seize the assets of another government unless it declares war on that government. The EU has repeatedly indicated that it does not intend to declare war on Russia.

#Oligarch – Americans allow funds seized from Russian oligarch to be paid to Ukraine

For the first time, the United States has authorized the use of assets seized from Russian oligarch Konstantin Malofeyev for the reconstruction of Ukraine. There was no mention of how the funds, which amount to US$5.4 million according to Reuters, would be used or when they would be made available to Kiev. The authorization was given by US Attorney General Merrick Garland. He said more such steps would be taken soon. Konstantin Malofeyev is a Russian investor and founder of the Tsargrad TV channel. He is accused of violating US sanctions imposed following the 2014 attachment of Crimea to Russia. A Kremlin spokesman said the decision would backfire on the United States. “This is nothing but an infringement of a property right that is quite sacred to the United States. It undermines their credibility”, he added. According to a report published in March by the European Commission, the cost of reconstruction and recovery in Ukraine now amounts to 383 billion euros. Charles Michel, the President of the European Council, said earlier this year that such a measure was a matter of “justice and equity”.

#Oil – First assessment of Western sanctions against Russian oil 

In December 2022, the EU imposed an embargo on Russian oil transported by sea and, together with the G7 countries, capped the prices of oil sold by Moscow. The aim is to keep Russian oil on the world market while limiting the country’s fiscal revenues. In the first quarter of 2023, the Central Bank of Russia (CBR) reported that exports of crude oil and oil products fell by US$15.6 billion. According to analysis by the Kyiv School of Economics, US$5.2 billion of this would be related to Moscow’s larger discounts to its customers. The rest of the shortfall would be attributable to lower volumes (US$6.1 billion) and the fall in the world price of black gold (US$4.2 billion) during this period. During the first quarter, Russian companies reportedly violated the sanctions by selling crude oil at an average price of US$73 per barrel through European shipping companies from the Pacific Ocean port of Kozmino. This price is well above the US$60 ceiling set by the EU and the G7. More generally, the Russian crude oil export market has undergone a radical transformation with the almost total replacement of European buyers by China and India. The European Union is currently considering an eleventh round of sanctions against Russia aiming to strengthen the enforcement of previous ones.