Page 35 - RusRPTApr24

2.14 U.S. secondary sanctions threat increases transaction costs for Russia
US President Joe Biden’s executive order imposing “secondary sanctions” on any companies party to financial transactions involving Russia’s defence sector has had a tangible effect since it was introduced in December. As a result, companies in China, Turkey, the UAE, and other countries that maintain ties with Russia are delaying payments for Russian exports, and banks are terminating relations with their Russian counterparts.
Since the full scale invasion of Ukraine in 2022, it has been increasingly difficult for Russian firms to make international payments. However, Biden’s order added significantly to their problems. We saw the first signs that Russia’s major new trading partners – China, India, Turkey – were taking this seriously in January. Since then, the problems have increased.
Banks in China, Turkey and the UAE this month began to demand written guarantees from their clients stating no individual or organization on the US sanctions list was involved in a given transaction, Reuters reported. This led to months-long delays for payment of Russian oil deliveries. Last month, banks in the UAE stepped up payment verification. “Sometimes it takes weeks to complete a direct transaction,” one trader told Reuters.
Above all, if the US can continue to disrupt transactions for Russian companies using the yuan, then it will be a serious blow. After the imposition of Western sanctions in 2022, the yuan has become widely used in Russian foreign trade. In December, the yuan accounted for more than a third of Russian imports and exports ($2.8bn of Russia’s $5.8bn in foreign currency exports was paid for in yuan, the Central Bank stated). The yuan surpassed the dollar in terms of turnover on the Moscow exchange last year with the Chinese currency accounting for 42% of trade, compared with less than 1% two years earlier.
China After Biden’s order, all Chinese state banks ceased operations with companies linked to Russia’s defence sector, and stepped up checks on all other Russian clients. A dozen major private banks followed suit. This meant that the average verification time for transactions from Russia to China jumped to as much as 18 days, according to the Business Practices in China Telegram channel. However, for small Chinese banks, working with similarly small Russian counterparts, the transaction times are unchanged.
As a source at one Russian company explained to The Bell, “this isn’t a breakdown in transaction chains, but an adjustment.” He added: “Overall, payments have been made and continue to be made. It’s just that first-tier banks are being replaced by second- and third-tier banks.” China’s banking system has more than 4,500 banks, many of which have no correspondent relationship with the US dollar or other reserve currencies. That means they have no fear of secondary sanctions.
The Bell’s source added that, the bigger the Russian bank and the more frequently it is mentioned in connection with sanctions, the less likely a
35 RUSSIA Country Report April 2024 www.intellinews.com