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US sanctions and Russia's foreign policy battle it out

The USA has announced a long list of new sanctions against Russia, and against companies and individuals helping and trading with Russia as a response to the suspicious death of Alexei Navalny in a Russian jail.

| 9 min read

Additional sanctions will give some moral support to Ukraine, as the country seeks to recruit more troops and asks for more weapons from its allies. The sanctions to date have dented but not undermined Russia’s fuel exports. The aim is to damage Russia’s economy sufficiently to make prosecuting the war unaffordable.

Although the war and initial sanctions caused a dip in the Russian economy in 2022, the IMF reports the Russian economy grew by 3% last year and will grow another 2.6% this year, assisted by cranking up war production.

The new sanctions

The wide range of measures is designed to limit Russian exports of oil, gas, and minerals, and to impede Russia’s war effort by cutting imports of weapons and of goods that help with domestic production of war materials.

One of the prime targets is the Arctic 2 liquid natural gas (LNG) project. Russia is engaged in a major expansion of its capacity to export LNG. It is increasing its gas output, buying LNG carriers, and putting in extra capacity to create and load LNG. South Korea has been building ships for this trade and now has problems with what to do with them. The Russian shipyards are also sanctioned limiting the ability of foreign companies to supply them.

The list of those sanctioned includes Turkey, Iran, North Korea, Belarus, Uganda and the UAE as suppliers of various items and technologies to Russia. The US is seeking to assert jurisdiction over third parties to make the blockade of Russia more effective. Russia’s Rosgeo energy and minerals exploration entity is also sanctioned. Weapons makers, steel pipe makers, electronics firms, gold miners, and energy related businesses are all targeted. The German company Elix ST is included amongst these.

There are also specific sanctions against individuals at the prison where Mr Navalny died.

The Ukraine war had a big impact on energy markets

Russia’s war in Ukraine changed energy markets dramatically. The west rushed to free itself of Russian oil and gas. Russia found new customers for much of it and benefitted from the higher prices the disruption created. The knock-on effects included a doubling down on Sino-Russian efforts to find alternatives to the US dollar for trade settlement and payment, the strengthening of Russia’s links with OPEC and with India, and further tensions within the world community.

The latest figures for the period to end January 2024 from the imposition of major sanctions in 2022 has shown a big shift to Russia selling more fossil fuel to China, India, Brazil and others away from the advanced countries. China is now the largest buyer of Russian coal and oil, followed by India. The EU however has found it difficult to wean itself off Russian hydrocarbons.

The EU is still the largest importer of Russian LNG and of piped Russian gas, led by France and Spain, though volumes are well down for piped gas compared to before the start of the war.

Russia has set out her foreign policy at length

A year ago, Russia set out her foreign policy in considerable detail, for those interested, in the document “The Concept of the Foreign Policy of the Russian Federation”. This made clear the global reach of the policy, and the pattern of close relations with China, India, the Islamic world, and the global south. The list of allies and partners includes many authoritarian states that worry the west including Belarus, Iran, Cuba, Venezuela, Nicaragua, Syria, North Korea, Myanmar, Eritrea, Mali, Zimbabwe, the Central African Republic, Burkina Faso and Niger.

Russia wishes to be a great power and an influence on world events, looking back in the document to her “decisive contribution to victory in WW II “, and to the USSR era, as well as reminding the world that Russia is one of the two largest nuclear weapons powers.

Like her ally, China, Russia pitches for the support and cooperation of the global south. Russia condemns what it sees as the neo colonialism of the US and the west and the neoliberal ideologies that it also attributes to them. In a further attack on the US, Russia says it rejects hegemony, favours non interference in the internal affairs of countries, and supports sovereign equality.

The policy is on display in the Sahel, the band of countries across Africa to the south of the Sahara. Here the old Wagner group has been reconstituted as an “Expeditionary corps” more closely associated to the Russian state. They offer a package of support to authoritarian governments for “regime survival”. Under General Averyanov they provide military support and advice, help resist threats against the state and build Russian trade with the country.

The battle for resources and influence in Africa

Mali, Niger and Burkino Faso withdrew from the Ecowas bloc to set up a competitor Sahel bloc, and cooperate more with Russia. Ecowas imposed sanctions on the three member states for their coups and failure to resume democratic government. Russian influence is seeking to change mining laws in these places to displace western investment and extraction with Russian-led activity. It is part of a struggle for control of uranium, lithium, gold, and other important minerals.

Russia’s policy offers support to autocrats resisting internal and external pressures to hold free elections, and is benefitting from the disruption caused by the coups to undermine western influence in the region.

Oil and sanctions

Almost half the Russian state’s revenues come from fossil fuel sales. In 2021 Russia was producing 10.5 m barrels a day of oil and condensate and was a large gas exporter. The US has sought to limit Russia to a $60 a barrel oil price for its exports to third countries. There is no easy way of enforcing such a cap. There are also reports of plenty of dark cargoes around the world that may well include illicit trade in Russian oil. The West has some influence as Russia still needs some of its ships to conduct its trade. All these cargo companies have to enforce western sanctions.

In January this year around 50% of Russian oil and oil products went in sanction enforcing vessels, with a higher percentage for oil products and lower for crude.

The EU, US and their allies have imposed an increasing range of sanctions on Russia since the outbreak of the war. There have been sanctions against named individuals, confiscation of their assets, and the immobilisation of the Russian Central Bank reserves. Sanctions restrict Russian access to Swift settlement systems for banks.

In response, Russia has increased its efforts to build or join alternative ways to market, to settlement and to holding reserves. Russia cooperates better with OPEC. Its friends and proxies in the Middle East include Iran and Syria, whilst also preserving reasonable relations with Qatar and Egypt as the US does.

Conclusions

The war in Ukraine led to a surge in energy prices and to major reorientation of the pattern of trade in oil and gas. It led to a wider development of more trade taking place within the rival blocs led by China and the US rather than between the blocs. It has led to a proliferation of sanctions, a further reason to restrict trade in technology products, and to increase western determination to onshore more activities.

It is fostering a bigger alternative payments and banking system to the western one. It is imposing considerable strains on the Russian military and requiring an even bigger diversion of money and effort into supporting the war. It is also now imposing a financing and weapons supply strain on the democracies as they struggle to meet large demands for shells and cash from Ukraine.

The unresolved economic issues include the future status of assets owned by the Russian Central bank and currently immobilised, and the speed and extent of the rearmament and arming of Ukraine that the democracies will be able to undertake.

Further sanctions will do a bit more damage to the Russian economy, but it is unlikely they will so hurt Russian that Putin decides the war is unaffordable. The reliance of even the US allies in the EU on some continuing Russian imports of gas and oil shows it is difficult to use this weapon to squeeze Russia more.

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US sanctions and Russia's foreign policy battle it out

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