Developments with the Russian move… It is understood that the incident will not only be aimed at helping the Russian separatists in Donbas during Putin’s Ukraine move and the advance of the Russian army. We see that Russia is blockading Ukraine not only from Donbas, but also from Odessa on the Black Sea navy, from Kharkiv, from the north over the Belarusian border, and inland towards Kiev. Therefore, if the West’s inaction continues, it may end in the form of the fall of Zelensky’s administration in Ukraine, and a pro-Russian government coming to power, Ukraine’s exclusion from the expanding NATO, and the de-facto transfer of Donbas to Russia.
Current sanctions… If we examine the US and UK sanctions announced by Biden and Johnson yesterday, the notes we made are as follows. Sanctions generally involve Sberbank, VTB Bank and a few key boards, and instead of being isolated from the SWIFT system, they are designed to prevent access to financial markets, asset freezes and bond issuances.
· OFAC requires all US financial institutions to close all Sberbank correspondents or payroll accounts within 30 days and reject all future transactions involving Sberbank or foreign financial institution subsidiaries.
· Payments that Sberbank tries to process in US dollars for its customers – with examples ranging from technology to transportation – will be interrupted and declined when the payment reaches a US financial institution. Accordingly, US financial institutions should reject such transactions unless they are exempt or authorized by OFAC.
· OFAC imposed full blocking sanctions on VTB Bank, Russia’s second largest financial institution, which owns about 20 percent of Russian banking assets. With the imposition of these sanctions, assets held in US financial institutions will be instantly frozen.
· All entities in which VTB Bank directly or indirectly owns 50 percent or more are subject to blocking, even if not defined by OFAC.
· OFAC also imposed blocking sanctions on three more major Russian financial institutions: Otkritie, Novikom and Sovcom. These three financial institutions play important roles in the Russian economy, with combined assets worth $80 billion. These definitions further constrain the Russian financial services sector and greatly reduce the ability of other critical Russian economic sectors to access global markets, attract investment and use the US dollar.
· OFAC extended Russia-related debt and equity restrictions to additional key aspects of the Russian economy in order to limit Russia’s ability to finance its invasion of Ukraine or President Putin’s other priorities. State-owned enterprises of Russia, organizations operating in the financial services sector of the Russian economy and other organizations determined to be subject to the prohibitions in this directive; Within the scope of Directive 3 of “Prohibitions on New Debt and Equity of Certain Russian-Related Institutions” (“Russian-Related Institutions Directive”), new debt and new share transactions with maturities longer than 14 days cannot be made. This includes 11 state enterprises and two large private entities operating in the financial services sector:
Gazprombank Joint Stock Company
Joint Stock Company Russian Agricultural Bank
Public Joint Stock Company Gazprom
Public Joint Stock Company Gazprom Neft
Public Joint Stock Company Transneft
Public Joint Stock Company Rostelecom
Public Joint Stock Company RusHydro
Public Joint Stock Company Alrosa
Joint Stock Company Sovcomflot
Open Joint Stock Company Russian Railways
Joint Stock Company Alfa-Bank
Credit Bank of Moscow Public Joint Stock Company
SWIFT inaction, the motion of the system… We can evaluate SWIFT inaction as follows; In our Macro Perspective report dated January 26, we talked about an alternative financial system that will include a few more countries from Russia and China. In fact, many countries, especially Russia and China, are trying to integrate alternative financial system payments in terms of commercial relations. The event may manifest as a new financial system movement or a financial system crisis that will involve many countries. I think separating all payment systems would be like a sharp knife. The global financial system is sufficiently integrated, and such a sanction would complicate the business and trade relations not only of Russian banks but also of Western financial system players, but would also reduce the circulation of the dollar and reduce the conversion of local currencies to dollars. Payment systems and the transformation of money instruments also constitute the eras of economic history. You can compare evolutions such as Barter, the gold standard, and Bretton Woods to the First Age, the Middle Ages, and the New Age. Therefore, the SWIFT event is likely to increase Chinese dominance and form a Chinese-led Russian-Chinese political and economic alliance. China also plans to enter Taiwan in a few years, and the US may have to create a multiple defensive front.
The influence of the USSR, China as an economic actor… This process of Chinese domination is important from an economic point of view. Because after Covid, trade networks and supply chain tend to shift, and alternative routes can change economic actors, just like the movement after geographical discoveries. The globalization process brought an integration that the West directed economic relations after the collapse of the USSR and made the capitalist order dominant. China’s economic breakthroughs were actually long-term, and China’s completion of its economic development is almost the same as Russia’s recovery of its former power in the 90s and 2000s after the collapse of the USSR (not economic, military and political) coincided with the period in the mid-2010s. With its huge stock of US Treasury bonds still in hand, China could have a significant financial impact. The USSR, on the other hand, has never been an economically strong actor, and it disintegrated because it could not manage the economic movement. The trade war with China in the Trump era, the first Ukraine crisis in 2014 and economic sanctions are the links of this process. In the 2022 Ukraine crisis, a play is being staged in a completely different dimension.
US interests in crisis… When the expansion of NATO’s sphere of influence after the democratization of former Eastern bloc members gradually removed the buffer zones with Russia. Russia, uneasy about being directly surrounded by NATO, took action and either directly took the former lands (Crimea, perhaps now Donbas) , or by making it satellite (the case of the countries of the former USSR), it advances its strategy. For the Russian threat on Europe, it is necessary to go to the Second World War and the Stalin era. Because USSR were one of the aggressor side until they started fighting the Germans advancing to Stalingrad. The Baltic countries were swallowed up, Poland was broken up, Finland was also attacked. Soviet Russia did not return these captured areas after the war (if you compare the 1939 and 1945 maps of Poland, you will see a country shifted to the left). After the war, the Soviet interventions in Prague and Budapest were exactly in line with NATO’s aims. While Russia now sees the eastward-expanding NATO as a security threat, the US still sees Russia as a threat to Europe, keeping the Russian threat on the EU alive, keeping Europe, where it has increased its military spending, as a market for its industry, and keeping its resource allocation at a level that cannot be economically strengthened. This transformation effect, which is desired to be created with Merkel and Macron, is desired to be broken by the US.
Conclusion? Ukraine’s independence may have been compromised. If Russia keeps its progress limited, it will keep the continent as the backyard of the US by expanding its area and continuing the Russian threat, which is approaching its former borders, on the EU. Nuclear is still not an option and keeps the business from being holistic. In a Ukraine left alone, the government changes and the pro-Russians come to power, which is a very important gain for Putin. In terms of the West; Economic troubles have intensified around the axis of inflation in the world, and in this process, the effects of supply chains on raw material prices are likely to be compounded by political troubles. The job of central banks is also getting harder and it becomes inextricable for them to settle the inflation/growth balance. The direction of capital is still very important..
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