Due to the sanctions applied by the European Union to Russia for the invasion of Ukrainian territory, the country has been looking for new partners to strengthen financial partnerships. An example is the agreement with Iran to connect the banking systems of nations, in a model similar to the Society for Worldwide Interbank Financial Telecommunications (Swift) — a system from which six of the seven largest Russian banks were banned.
The partnership between the countries includes 52 Iranian and 106 Russian banks. Iran also suffered from international sanctions involving the Swift platform, following a decision by the United States in 2018, due to the nuclear program developed by the Persian nation.
Swift was created in 1973 and connects 11 thousand banks and financial institutions from more than 200 countries, with the National Bank of Belgium and other global banking leaders as supervisory entities. Russia had already been threatened with exclusion from the platform in 2014, when it invaded the Crimea region.
In addition to Iran, Russia has sought to strengthen financial and commercial ties with other nations, such as India and China, belonging to the BRICS group (Brazil, Russia, India, China and South Africa).
Trade between China and Russia totaled 1.28 trillion yuan in 2022 (equivalent to 190 billion dollars), registering an increase of 34.3% compared to 2021. commoditiesin particular oil and natural gas.
In the first five months of 2022, India imported 18% of all oil consumed in the country directly from Russia. In the same period of 2021, only 1% of the total imported by India came from Russia.
“The sanctions directly hit the countries of the European Union and the United States for cultural and historical reasons. So when you take the motives of the leaders of countries like China, India and Iran, they believe that turning the dollar and the finance system into a weapon against any country is a threat not only to Russia, but to their own countries to the future”, analyzes Igor Macedo de Lucena, economist and member of Chatham House.
Sanctions and reliance on allies bring long-term risk
With no apparent short-term resolution to the Ukraine War, sanctions against Russia must be maintained. These restrictions increase the dependence of the Russian economy on new trading partners.
“The longer the war goes on and Ukraine receives resources from the US and the European Union, the more difficult it becomes for the country to maintain its economic capacity. There remains the big question of how long President Vladimir Putin will maintain political support within the country after one or more years without growth in the economy”, continues Lucena.
Research by the Vienna Institute for International Economic Studies (WIIW) points out that Russia’s Gross Domestic Product (GDP) should fall by 3% in 2023. The main reason given by the institution is that the price ceiling for Russian oil fell due to sanctions practiced by the European Union and the United States.
This scenario could worsen Putin’s governability within Russia, especially if Russian oligarchs increase pressure for a ceasefire against Ukraine. The Russian president has been in power since 2012, having previously held the post between 2000 and 2008, although in practice he has never actually stopped ruling.
“This support is fundamental for Putin. We don’t know how long the real situation of national reserves and international partnerships with semi-democratic or authoritarian nations will remain. If there is a good enough agreement between one of these allies with the European Union or the United States, priorities are likely to change. And that changes Russia’s ability to remain in the conflict”, concludes Lucena.
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