Increasingly, Russia's allies are severing economic ties, evident in the suspension of transactions and freezing of Russian accounts in their banks. This impedes Russia's imports, including crucial military equipment components, and hampers its exports. Apostrophe investigates the reasons behind even Global South nations distancing themselves from Russia and explores if there are any remaining players willing to align with the Kremlin.
Banks of the United Arab Emirates are significantly limiting cash transactions with Russian entities and individuals, as reported by "Vedomosti" citing Russian business sources.
Currently, UAE banks are refraining from accepting money from Russia and are not facilitating payments in the opposite direction, according to an unnamed source from the Russian business community, as reported by the publication.
Emirati financial institutions are now closing accounts belonging to Russians, including both businesses and individuals.
Russian clients in UAE banks faced challenges in fall 2023, but recently, there has been a complete halt to their trade and financial activities. It is likely that Emirati banks fearing secondary sanctions from the USA and its allies, targeting countries aiding Russia in circumventing earlier restrictions.
Following the Russian Federation's full-scale invasion to Ukraine, the Emirates emerged as a key haven for affluent Russians, serving as a hub for their business dealings to evade Western sanctions. Consequently, limitations on financial transactions in the UAE could pose significant challenges for Russian citizens.
Similar state of affairs arose in Turkey, with Russians increasingly relocating there following the outbreak of the major conflict, particularly spurred by Russia's partial mobilization announcement in September 2022.
Turkish banks, starting late 2023, have rejected collaboration with Russian counterparts, opting to block payments from Russians and their accounts. This stems from the shared concern about potential repercussions under the secondary sanctions imposed by the USA in December of the preceding year and by the European Union in January of the current year.
Hug a Chinese
Russian businesses face challenges in money settlements with China. Initially smooth, in January, China's state-owned banks tightened service conditions for Russian clients. By early February, Chouzhou Commercial Bank, a key settlement center for Russian importers, ceased operations with Russia. Making the problem worse, three major banks in Greater China - Industrial and Commercial Bank of China (ICBC), China Construction Bank (CCB), and Bank of China - halted payments from Russian firms affected by Western sanctions.
For China, the challenge arises as it emerged as the primary trading partner for the Russian Federation following the onset of the full-scale conflict in Ukraine in 2022. Given that Russia primarily exports commodities such as oil, gas, timber, and food to the Celestial Empire, the disruption in payments poses significant challenges, as they affect revenue inflows to the Russian budget.
Simultaneously, challenges extend to imports from China. Illya Neskhodovskyi, head of the ANTS network's analytical department, notes that these issues encompass not just consumer goods but frequently crucial components that are unattainable for Russians in the Western markets.
Consequently, Russia must complicate its strategies for evading sanctions, inevitably raising the overall costs for the aggressor nation.
‘This involved a "layout" in Belarus, then – in Kazakhstan, facilitating settlements with China. Supposedly, this operational scheme enables seamless financial transactions, ’ Neskhodovskyi explains.
Nevertheless, the Emirates stand out as a unique case, with many Russians registering companies representing state interests, facilitating almost unrestricted global business. Concurrently, the UAE dirham has emerged as a key currency for Russia in its international transactions.
Hindering Russia's financial operations via the UAE is crucial for inflicting maximum economic and, consequently, military impact. The effects of these measures are already discernible.
‘India refrained from purchasing Russian Sokol branded oil for two months as the designated payment recipient, unable to open an account in the UAE. Otherwise, UAE banks would be subject to sanctions. Recently, they secured an arrangement with a company enabling direct settlements from India to the UAE-based entity, ’ Neskhodovskyi says.
Good Morning, Vietnam
In Moscow, they do not just sit around. Proactive efforts are underway to explore alternative secure business environments. Currently, they promote actively business registration and unimpeded financial operations in Vietnam and Indonesia.
The roster of these ‘havens’ likely extends beyond these nations. Broadly, any country in the Global South adopting a predominantly ‘neutral’ stance toward Russian aggression in Ukraine could potentially aid Russia in sidestepping sanctions. In many instances, these countries openly acknowledge their financial gains from assisting the Russian Federation in evading sanctions.
Yet, aligning with Russia in such endeavors could pose significant challenges, deterring many from engaging in closer cooperation with this toxic nation.
Specifically, this is relevant to Vietnam, as reviled by Ukrainian diplomat and international expert Ruslan Osypenko.
‘Vietnam lacks the strength, and it's strategically positioned in the U.S. plan as an alternative to China. It's likely to receive more offers than Russia can present, ‘ Osypenko explains. ‘Indonesia might commit an attempt, given its pursuit of an independent policy in the Asia-Pacific region. However, the U.S., redirecting focus to Asia-Pacific and refraining from backing Ukraine and Europe, will not permit the creation of a financial hub for Russia there.’
But not by Asia alone. For Russia, the potentially attractive region in this regard is Latin America. Here, it may find something to count on.
‘Latin America perceives Russia as undertaking the task they cannot accomplish themselves - to overthrow the hegemony of the United States, particularly in the Latin American region,’ Osypenko explains./
These can be both small countries (Ecuador) and larger ones - for example, Chile. This includes nations of various sizes, from smaller ones like Ecuador to larger players like Chile. However, Argentina, led by the pro-Western politician Javier Millay since December 2023, seems improbable. According to Ruslan Osypenko, Russia's prospects in Mexico are slim, as the U.S. views Mexico as an alternative production base to China and is likely to exert influence and will ‘buy out’ it.
Therefore, it is most likely that Brazil will take on such a role.
‘Brazil strategically positions itself as an independent player, playing its own game. And that is why Brazil can become such a hub, I do not rule it out,’ Osypenko says.
You’ve Got Mail
However, it is also possible that Russia may not succeed with Brazil. It is straightforward – banks exist in this country as well.
As per Illia Neskhodovskyi, the US Treasury Department has intensified its issuance of ‘Send-a-Dime Letters’ to global banks. The U.S. Treasury cautions that banks engaging in transactions for sanctioned individuals risk being cut off from dollar payments.
‘No banking system can work without this currency - this is the loss of 90% of customers,’ he states.
Thus, the ring around Russia is tightening. Тhe Russian Federation is attempting to introduce a cryptocurrency payment system for the grain supply to African nations. It is worth noting that cryptocurrency payments are favored by terrorists and organized crime groups.
‘These developments signal a significant decline in Russia's capability to conduct global financial transactions. These measures reflect a sense of desperation. Russia is steadily progressing towards comprehensive financial isolation, akin to the current state of North Korea,’ Neskhodovskyi says.
In a discussion with Apostrophe, Ukrainian economist and former National Bank of Ukraine Council member, Vitaly Shapran, foresaw restrictions on financial transactions between Arab, Asian, and Latin American countries and Russian firms to avoid sanctions. This prediction, now realized in the UAE, may soon extend to African nations. The situation in Vietnam, Indonesia, Brazil, and others warrants close observation.