A wider array of sanctions against Russia are projected to deepen non-dollar denominated trade relations between Russia and China, according to former US trade negotiator and World Bank official with China and Russia experience, Harry Broadman.
“The problem with sanctions, especially involving an oil producer, which is what Russia is, will be leakage in the system,” Broadman said as quoted by Reuters.
“China may say, ‘We’re going to buy oil on the open market and if it’s Russian oil, so be it.’”
Since lesser punitive measures were introduced in 2014 after the reunification of the Crimea peninsula with Russia, China has reportedly emerged as its biggest export destination.
Washington and Western nations are poised to impose a wider range of economic penalties against Russia if Moscow escalates the current conflict in the breakaway republics of Donetsk and Lugansk. The Kremlin recognized the independence of both earlier this week.
By the follow-up decree, Putin ordered the Russian military to “secure the peace” in the newly recognized republics, which were formerly considered part of Ukraine.
The recognition prompted the White House to unleash the “first tranche” of new sanctions against Russia. On Tuesday, US President Joe Biden signed an executive order that is supposed to target “Russia’s elite and family members.” Biden also claimed the Nord Stream 2 pipeline project “will not move forward,” and that the sanctions would help “cut off Russia’s government from Western financing” by banning trade in its sovereign debt.
Under the executive order, any institution in the Russian financial services sector is a target for further sanctions, US officials claimed, saying that over 80% of Russia’s daily foreign exchange transactions and half its trade are settled in US dollars. Biden pledged to “take robust action to make sure the pain of our sanctions is targeted at the Russian economy, not ours.”
However, several experts say that cutting the $1.5 trillion economy out of global commerce is not an easy task since Russia is among the world’s top exporters of oil, natural gas, copper, aluminum, palladium and other vital commodities.
Biden’s announcements sent oil prices to highs not seen since 2014.
Russia accounted for nearly 2% of global trade in 2020, down from 2.8% in 2013, according to World Bank data. The country’s 2020 GDP was ranked 11th globally, between Brazil and South Korea.
According to the World Bank’s World International Trade Solution database, Russia’s dependence on trade has declined over the past 20 years. Meanwhile, its export destinations have also changed. The Netherlands was the top export destination a decade ago, due to oil trade, but it has been replaced by China. Germany and Britain’s purchases from Russia have held largely steady, while Belarus’ imports have been growing.
China remains Russia’s number one supplier of imports, with mobile phones, computers, telecommunications gear, toys, textiles, clothing, and electronics parts among top categories. Its share of Russian imports has grown since 2014, while those from Germany have dropped markedly.