2024-08-28 02:13:31
Sanctions force Moscow to look for different schemes for payments to bypass them
Sanctions imposed on Russia by the EC and restrictions on payments due to bans on the use of platforms by the US are tightening the noose around the Russian economy and finances and leading to the search for unconventional solutions.
A few days ago, Reuters reported that Russia and China were preparing to enter into barter deals to avoid sanctions. Thus, the two countries will try to reduce their dependence on cash transactions, which are delayed for weeks due to checks imposed due to secondary sanctions from Washington.
And currently, payments between the two countries are made through small Chinese regional banks that are not part of the global financial system and are subject to less scrutiny. However, barter schemes will make the trade much more difficult to detect.
However, the transition to barter, which was in full bloom during the time of socialism and the first years of transition in the USSR, may be delayed if only because legislative changes are required. However, they will only apply to trade between these two countries.
Reuters claims that Russia’s major commercial banks were ready with the schemes, but so far they have remained hidden as no one has officially spoken on the subject. Official institutions in both countries refuse to answer the question of whether barter contracts for raw materials, for example, are also being discussed. Representatives of the Russian metallurgy, however, hint that there are talks about the exchange of raw materials for Chinese machinery and equipment.
To avoid sanctions, digital payments can also be used, in which bank transfers are eliminated, and control over them is stricter. However, experts claim that the introduction of digital payments can begin no earlier than 2028.
Whether Russia will increasingly use barter trade with other countries is hard to say. For Bulgaria, the last official data on such transactions are from 1998. Then we imported gas for 238 million dollars and nuclear fuel for 91 million dollars, which were paid for with Bulgarian goods and services.
And the last reports of barter between Bulgaria and Russia date from 2002. Back then, part of the nuclear fuel received from Russia and the import of natural gas were paid for with counter-supply of goods and services. Whether this actually happened is difficult to establish, but at least such a proposal was made to the Russian side by the then Deputy Prime Minister Nikolay Vasilev. This happened during his meetings with the Minister of Atomic Energy of the Russian Federation, Alexander Rumyantsev, and with the executive director of Gazprom, Alexey Miller.
However, a number of countries around the world that are or are often under sanctions have extensive experience with barter trade. In 2019, for example, China signed a contract with Malaysia to buy palm oil for a total of $150 million in exchange for construction services, raw materials and armaments.
Two years later, Iran paid with pistachios for imports of auto parts from China worth $2 million.
Two years ago, information was circulated that Turkey and Russia might switch to barter in trade with each other. The information came from Izzet Ekmekcibash – Chairman of the Turkey-Russia Business Council at the Council for Foreign Economic Relations of Turkey. According to him, both the option of barter and payment in local currency, which has been applied in some cases, is being discussed.
“Actually, there was already trade with Russia in local currency, but the volume was very small. In order for it to increase, both sides need to lift mutual guarantees,” he said, adding that Turkey and Russia are working on the issue. “If a guarantee of 5 billion dollars is given, then we will be able to export goods worth 5 billion dollars in Turkish lira,” explained Ekmekcibash.
Russian companies dealing in raw materials and metals such as nickel, steel and timber have faced difficulties receiving payments for their goods and purchasing equipment and raw materials since the conflict began. This is true even when they are not sanctioned, although some have been subject to multiple sanctions by the US, the European Union and their allies.
Even in China, which has not joined international sanctions and has become a major export market for many Russian raw materials as well as a supplier of goods and equipment, financial transactions have become more difficult this year. This was largely due to the US Treasury’s threat of secondary sanctions on lenders, making it easier to avoid sanctions, which led to a tightening of measures.
Recently, it became clear that Russian commodity companies, which are experiencing difficulties in conducting financial transactions with Chinese partners, have started using a new method of settling transactions – stablecoins.
At least two leading metals producers have started using this and some other cryptocurrencies to settle some of their cross-border transactions with mostly Chinese customers and suppliers. With stablecoins, a transfer can take 15 seconds and cost a few cents, which makes such transactions quite efficient when the sender already has a stablecoin asset base, says Ivan Kozlov, a digital currency expert.
The alternative is often slower transactions or worse, risking an overseas bank account that could be frozen. Because some unsanctioned Russian companies opened dozens of accounts in different countries only to see them frozen one after another.
The use of cryptocurrencies for payments is not unusual for countries under sanctions. Cargo transactions from Venezuela, home to the world’s largest proven crude oil reserves, are increasingly done using tether. Many of the deals that happen at deep discounts are done through brokers based in Dubai.
The growing role of crypto in settlements also indicates a change in the Russian central bank’s approach to the industry. It had previously considered a total ban on the use and creation of all cryptocurrencies, but in November Governor Elvira Nabiulina told parliament she supported experimenting with such payments in international transactions.
Bulgaria is second in the EU in terms of the number of Russian companies
Bulgaria ranks second in the European Union (EU) in terms of the number of companies that are partially or fully owned by Russian individuals or legal entities, according to a study by Moody’s.
The rating agency made the inquiry in connection with the 12th sanction package. It foresees from July 1 this year every bank transaction worth more than 100 thousand euros to be reported by banks in the European Union, if it is related to Russian individuals or legal entities.
According to the data, there are a total of 9,581 companies in Bulgaria, or 21% of all registered companies in the EU, in which at least 40% of the ownership is held by Russian persons. Before us is only the Czech Republic with 12,480 companies, or 27% of all Russian-related companies in the EU.
The remaining three member states with the most Russian companies are Germany, Latvia and Italy. The total number of Russian-owned companies on the territory of the EU is 46 thousand.