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On Thursday, April 14, Elina Ribakova joined Markus’ Academy for a lecture on Russia Sanctions: Diving into the Details. Ribakova is Deputy Chief Economist at the Institute of International Finance based in Washington DC.

Watch the full presentation below. You can also watch all Markus’ Academy webinars on the Markus’ Academy YouTube channel.


[0:00] Introductory remarks

[11:26] Overview of Russian sanctions

[22:09] A recent history of Russian financial sanctions

[30:51] Russia’s 2014 response

[36:17] Current strength of the ruble

[48:15] Countries reliant on Russian oil

[57:46] Impact of oil on Russian budget

[1:10:37] Going forward: counter sanctions, possible solutions

Executive Summary

  • [0:00] Introductory remarks. Sanctions could take many forms: trade sanctions through export control of technology or import restrictions on energy; sanctions on oil are less costly on the West and more costly on Russia, even if oil supply can be partially rechanneled without secondary sanctions or sanctions on shipping. Financial sanctions, through capital account restrictions, freezing of reserves, and forced currency conversion might change the international monetary system – not by hurting the US Dollar as leading reserve currency, but making impositions of capital controls more likely. Forcing Russia to pay in US Dollar/Euro instead of in Rubles is part of a hide-and-seek game to identify US Dollar/Euro holdings.
  • [11:26] Overview of Russian sanctions. Sanctions are certainly having an impact on Russia, and we have been able to prepare for this over the last eight years. We may need to move to smart sanctions on energy. This could be in the form of escrow accounts, limitations on oil and gas purchases, and waivers vs threat of secondary sanctions on certain other countries (which may be necessary if Russia can turn to China or India as new buyers and avoid feeling the effects of these sanctions). Russia rarely goes into deficit. In 2014, it is easy to see that Russia begins to really start to disentangle from the global markets by paying off its debts, which builds strong buffers. Sanctions are likely to have an effect on growth, because of the Russian need to import parts and the broad coordinated effort in general.
  • [22:09] A recent history of Russian financial sanctions. A shift in 2014 saw the U.S. impose a first round of sanctions on Russia, followed by many more recently. 2022 sanctions included central bank sanctions, SWIFT, export controls, commodity bans, and more. Russia’s financial system is dominated by state controlled banks (SOE). Recent sanctions have meant that banks like Sberbank are not allowed to work with dollars; yet this did not do too much given that Europe relies heavily on Russia for energy, so it mostly dealt in Euros anyways. SWIFT sanctions meant that people felt reluctant to trade with Russia, because it would be hard to process and register the trades. Finally, reputational risks means that many corporations decided to self-sanction and withdraw from operating with Russia as it became too toxic.
  • [30:51] Russia’s 2014 response. The global disengagement suggests that Russia has been planning on withstanding some external shock since 2014; whether this is a war is unclear, but they have been ready for some form of conflict.
  • [36:17] Current strength of the ruble. The ruble has gotten back to pre-crisis levels, because of large accounting surpluses, tight capital controls, and a skilled response from the central bank. However, the ruble is relatively illiquid, because it cannot be used outside of Russia. The financial system is stabilizing, without the bank runs that were happening earlier. Most recently, Russia’s government proposed a new system of gas for Rubles, where buyers open accounts with Gazprom bank, which will then convert Euros to rubles, and spend the money on Gazprom itself; this makes it difficult to levy effective sanctions. Sanctions must address the current account.
  • [48:15] Countries reliant on Russian oil. Europe is the primary purchaser of Russian energy, making it harder for some countries that other to stop purchasing from Russia, particularly for countries that are less diversified. There would be some ways to try to compensate for Russian oil, but it would be challenging and require infrastructure. The Druzhba pipeline was made in 1964, which connects much of Russia to Europe. Ukraine will not do anything to it because they still are indirectly fueled by Russian oil, via Poland, and so a full shut-off would hurt them a good deal.
  • [57:46] Impact of oil on Russian budget. Oil and gas are an important source of Russian revenue. Investment in Russia’s oil was hurt by the heavy taxation. Oil is far more important than gas in balance of payments and the federal budget, with most of the oil profit going into the budget. The budget is very important for the military, though it is hard to tell the exact scale of Russian expenditures. Though this makes a cold-turkey sanctions approach quite appealing in terms of putting pressure on Russia, this still must be calculated in order to not harm Ukraine and other nations. Russia’s gas will take a nontrivial time to replace.
  • [1:10:37] Going forward: counter sanctions, possible solutions.  Russia does have some leverage, in terms of imposing counter sanctions in certain metals. However, this could hurt Russia further, particularly if they are also losing substantial revenue from energy. Russia’s currency and financial system have stabilized, but exports are a key issue now. By escrowing accounts for payments, and placing limitations on oil and gas purchases, perhaps with the support of secondary sanctions, there could be effective change going forward. However, this must be done carefully. Though crypto appears to be actively used in Russia, it is not currently big enough to play a part in sanctions considerations.