Russia’s sanctions-hit economy is facing severe challenges and potential “ruination” unless alternative methods to pay for exports are found, one of President Vladimir Putin‘s top bankers has warned.
This comes in response to Chinese banks, including the Russian division of the Bank of China, suspending transactions with sanctioned Russian banks.
Vladimir Chistyukhin, the first deputy chairman of the Bank of Russia, highlighted the critical situation following the decision by several Chinese lenders, such as ICBC and China CITIC Bank, to halt yuan payments with Russian banks sanctioned by the US.
These moves are a precautionary response to Western sanctions, which have been intensified to cut off funding for Putin’s invasion of Ukraine.
“You need to do everything to keep the wheels turning,” Chistyukhin reportedly said at the St. Petersburg International Legal Forum. “Everything needs to be tried,” he said, including things that “seemed unpopular to us yesterday.”
Chistyukhin added that without ways to pay for products in “our export-dependent and import-dependent country – it would be just ruination.”
The recent wave of US-led sanctions targets Russian financial institutions and individuals involved with them, exacerbating the economic strain on Russia. These measures have forced many large Russian banks to shift from dollar and euro transactions to settlements in currencies like the yuan and Indian rupee.
The Bank of China’s decision is particularly significant given the surge in trade between Russia and China, which reached $218.2 billion last year.
This trade relationship has been crucial for Russia, especially as it faces declining gas revenues and challenges selling its key export – oil. China’s support has been vital in navigating the turbulence caused by sanctions.
Boris Grozovski, an expert on Russia‘s economy from the Wilson Center in Washington, D.C., noted that Russia‘s reliance on China has grown amid technological isolation.
He told Newsweek: “Russia can’t develop new technologies in isolation, so it is counting on China’s confrontation with the US and the EU’s weakness. If geo-economic fragmentation increases, China will be more inclined to deal with Russia as one of its key allies. If not, Russia will of course have big problems with the technology gap.”
Grozovski added that current oil prices allow Russia to allocate a significant portion of its national budget to the war effort. He warned that ending the war abruptly could lead to a severe economic crisis unless preparations for future conflicts are made.
US President Joe Biden‘s Executive Order 14114, issued in December, has led Zhejiang Chouzhou Commercial Bank, a primary Chinese bank for Russian importers, to cease operations in Russia.
The recent U.S. sanctions have also targeted the Moscow Exchange and its subsidiaries, effectively cutting them off from the global dollar system. In response, the exchange has halted trading in U.S. dollars, euros, and Hong Kong dollars, further isolating Russia from international financial markets.
