Page 27 - bneMag April 2022 Russia living with sanctions

bne April 2022 Cover story I 27
to ensure that the conflict in Ukraine does not worsen an already existent food crisis, Human Rights Watch (HRW) said on at the end of March.
The West is now hunting for alternative suppliers, but given the global nature
of the commodities markets Russia
will have ample opportunity to find backdoor channels to sell its products to its old customers.
At the same time, Russia will actively seek new customers in the developing world. While the sanctions are mostly imposed by the G7 markets, which represent 80% of global GDP, they also make up less than a seventh of the world’s population. Russia is already actively trading with
the rest of world and will actively seek to boost this trade. India has already taken advantage of the buyers' market and cut deals to buy Russian oil and metals at deeply discounted prices. Just how this trend plays out remains to be seen, but Russia is bound to find willing partners in the rest of the world.
The fact that the rest of the world is so dependent on Russian commodities
in itself is a huge hole in the sanctions regime and the sanctions on Russia will change the nature of international
trade. EM markets have already been moving away from the dollar slowly, but one of the upshots of the current conflicts is that commodities will play a larger role in country’s reserves and in international trade.
Zoltan Pozsar, a well-known Credit Suisse analyst and former US Treasury official, said in a recent paper: “We are [now] witnessing the birth of Bretton Woods III – a new world monetary order centred on commodity-based currencies in the East that will probably weaken the Eurodollar system and contribute to inflationary forces in the West...It used to be as simple as “our currency, your problem.” Now it’s “our commodity, your problem”.”
The first signs of this have already appeared. As part of Putin’s rubles-for- gas scheme is the CBR said it would also accept payment for gas in gold and quoted a price of RUB5,000 per gram, effectively linking the value of the ruble, gold and gas. More of these sorts of deals are likely to appear in Russia’s commodity trades.
The final irony of the conflict is that Russia is likely to make a lot of money from the spike in tensions. The super- high commodity prices will lead to a huge current record account surplus
for Russia this year. According to the Institute of International Finance the surplus could reach $240bn this year – double the record $120bn Russia earned in 2021 and 80% of all the CBR money frozen in EU accounts.
The calculus may change entirely in the coming months. As the West wakes up to the fact that the extreme sanction regime will not cripple the Russia economy, but actually make it money, an effort will begin to put in place new secondary sanctions that prevent the Kremlin use what are bound to become increasingly complicated and sophisticated schemes to avoid the same sanctions. The West will in effect start to play whack-a-mole with Russia’s trade regime. For example, if the West can successfully close down Russian oil exports that will cost the Kremlin about 40% of last year's budget revenues.
How this game plays out will depend in large part on how willing the rest of the world, and the G20 in particular, is willing to adhere to the West’s sanctions regime. On the one hand India has already done deals to buy Russian oil, gas and other commodities at a deep discount. On the other Chinese banks have refused to issue Russian oil companies letters of credit that underpin oil exports.
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