The US has imposed fresh sanctions on hundreds of individuals as well as companies across Europe & Asia for indirectly aiding Russia's war efforts in Ukraine. The clampdown is directed at companies accused of providing products and services bolstering Russian military activities and assisting Moscow in evading existing sanctions. The US Department of State has specifically voiced concern over the substantial exports of dual-use goods from China to Russia, which could be diverted for military purposes.
The latest sanctions include measures against companies in China involved in shipping machine tools and microelectronics to Russia
In June this year, the US imposed similar sanctions on China-based companies selling semiconductors to Moscow to widen its isolation of Russia and undercut its military machine.
Besides targeting entities for their Moscow links, the US has warned countries of potential secondary sanctions if they facilitate Russian banks in setting up local branches. Washington believes that such branches could serve as channels for financing the war effort of Russian President Vladimir Putin. Deputy Treasury Secretary Wally Adeyemo said countries allowing these branches could face sanctions themselves, even if the banks are not directly sanctioned.
Do sanctions really bite?
China has strongly denounced the fresh US sanctions, pledging to implement measures to safeguard its businesses.
So far, Russia, along with its newfound friend China, has been able to skirt the impact of US sanctions by deploying workarounds. When the US cut major Russian banks off from using the dollar post-invasion, Moscow and Beijing took increasingly complex steps to ensure bilateral payments continued.
Moscow and Beijing are also actively working on developing financial and trade systems independent of US sanctions. This includes establishing non-dollar payment mechanisms to facilitate trade and financial transactions.
Separately, India and Russia are also mulling a “dynamic reference rate” for their respective currencies—the Indian Rupee (INR) and the Russian Rouble (RUB).
This proposed system aims to streamline financial transactions between the two countries and mitigate the impact of US sanctions on Russia.
The current method of converting INR to RUB involves a cumbersome two-step process—first converting INR to USD and then USD to RUB. This process is further complicated by US sanctions that limit Russia’s access to international financial systems like SWIFT.
A push for an alternative payment mechanism comes at a time when India's oil imports from Russia have hit a record high. In July, India pipped China to emerge as the top importer of Russian crude with imports reaching a record 2.07 million barrels per day in July—a 12% year-on-year increase.
But to have a reference rate between the two local currencies, the currencies need to be traded over an exchange for a prolonged time, which the two countries are yet to agree on, sources told Reuters.
Russia's 'escape valve'
Since the February 2022 invasion, the US has imposed thousands of sanctions on Russia or firms/entities doing business with the country. However, the effectiveness of these measures has come into question, since Russia has continued to support its economy by selling oil and gas on international markets.
Countries like China and India stepped up oil imports from Russia after Moscow started selling crude at a heavy discount following Western sanctions.
Russian crude now constitutes a record 44% of India's total oil imports for July. For context, Russian oil accounted for just 2% of India's total crude imports in 2021 - the year before the war in Ukraine.
Furthermore, despite the Western-imposed price cap of $60 per barrel, Russian exporters have secured discounts of $3 to $3.50 per barrel below the Brent crude benchmark for Indian deliveries, denoting the challenges in enforcing the sanctions effectively.
Several policy experts say the sanctions are not strong enough — as evidenced by the growth of the Russian economy. Eswar Prasad, a Cornell economist, told the AP that the latest sanctions are “likely to be of limited potency in stifling Russia’s economy or its war effort.”
He said the “escape valve” provided by China, Russia’s ability to manoeuvre around many of the sanctions and the impasse in Congress over new military aid for Ukraine “have substantially eroded the symbolic and substantive power of such sanctions.”
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