The decision to ban the purchase of newly minted and refined gold from Russia is the latest attempt by the United States, Britain and their allies to escalate a wave of sanctions aimed at Russia in response to a four-month-old invasion. Of Ukraine.
The announcement, made as President Biden and other Group of 7 leaders met in Germany this week, builds on steps already taken to cut Russia off from the international financial system and deny it additional revenue. helping to fund the war in Ukraine and punishing Russian President Vladimir V. Putin and the wealthy businessmen around him.
Ukraine’s allies have already restricted most trade with Russia, pooled hundreds of billions of dollars in Bank of Russia assets in their own financial institutions, and banned Russian banks from using the messaging system. known as SWIFT, which underlies the international system. Payment.
Russia, one of the world’s largest gold producers, has been boosting new gold mines to make up for some of the paralyzed assets, Foley & Lardner state security attorney Christopher Swift said.
The Bullion Market Association in London, an important center for global gold trading, had already suspended transactions with six Russian silver and gold refineries in March.
Mr Swift, who previously worked in the Treasury Department’s Office of Foreign Assets Control, said: “As for the reserves held by Russian companies and oligarchs, they have brought new gold online. The G7 is closing access to this new gold”
Russian business billionaires are buying bullion to mitigate sanctions impact. British Prime Minister Boris Johnson stressed on Sunday that the move would “hit the Russian oligarchs directly”.
Whether this latest move, due to be officially announced on Tuesday, will also – in Mr Johnson’s words – “attack the heart of Putin’s war machine” is a matter of wider debate.
Ukraine’s allies are struggling to keep up the pressure on Putin and deprive him of resources for his war machine without risking too much of his economy. The balancing act is particularly difficult for the European Union, which is heavily dependent on Russian oil and gas.
Soaring oil prices coupled with a huge appetite for the fuel around the world means Russia is making even more money from pre-war crude oil sales, even though it’s being sold at a discount.
After weeks of tense talks, the European Union last month agreed to impose a massive import ban on Russian oil until the end of this year and to bar European countries from insuring tankers carrying Russian oil. But so far, the issue of imposing sanctions on Russian gas — which is a much harder-to-find alternative than oil — has been off the table. Germany’s government and industry leaders have warned that the gas embargo would be disastrous for the German economy.
Speaking of the introduction of the sanctions, Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics in Washington, said the build-up of pressure on the Russian economy is “on track”. He added that “it comes as a surprise, if anything, at how consistent policy coordination is across Atlantic and East Asian countries.”
Various members of the coalition are considering ways to gradually increase the fines. Andrew Schauer, a lawyer for Sidley, said the gold ban “gives G7 governments an opportunity to climb some runways and ramps,” which advises companies on how to comply with the restrictions.
The Russo-Ukrainian War and the World Economy
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a far-reaching struggle. Russia’s invasion of Ukraine had widespread repercussions around the world, adding to stock market troubles. The conflict has led to a huge increase in gas prices and product shortages, prompting Europe to reconsider its dependence on Russian energy sources.
Russia’s economy is facing a recession. Though pro-Ukrainian countries continue to impose sanctions in response to their aggression against the Kremlin, the Russian economy has avoided a crippling collapse on capital controls and interest rate hikes for the time being. But Russia’s central bank governor warned the country could face a severe economic slowdown as inventories of imported goods and parts run short.
Trade barriers are increasing. The invasion of Ukraine has also unleashed a wave of protectionism as governments, desperate to secure goods for their citizens amid shortages and rising prices, erect new barriers to curb exports. But restrictions make products more expensive and even harder to come by.
Increase in the prices of essential metals. The price of palladium, used in car exhaust systems and cellphones, is rising amid fears that Russia, the world’s largest metals exporter, could be cut off from global markets. The price of nickel, another important Russian export, is also rising.
The difference between newly mined and refined gold and gold exported or purchased before the embargo is in line with the sanctions framework, which restricts new investment in Russian companies while allowing existing investment, Mr Schauer said.
The new ban aims to deprive Russia of additional revenue from the export of gold, which is used for jewelry, in certain industrial processes and for investments. As is often the case in times of crisis, there was a boom in buying gold for investment as the coronavirus pandemic began to boost the global economy. Investors expect value to be preserved. Central banks, including the Federal Reserve, bought Russian gold through intermediaries.
According to the British government, Russia made more than $15 billion from its gold exports last year. With gold being held in large amounts in reserves by central banks around the world, Russia had a ready market.
“Russia is a big gold producer and it’s a reserve asset,” said Professor Lucrezia Reichlin of the London Business School. “If they can’t sell, that revenue stream is gone.”
After a first round of sanctions halted much of the current international gold trade, Russia’s central bank announced it would resume buying domestically produced gold, which has been used to strengthen its currency. was also seen as a possibility. The value of the gold held at the Central Bank of Russia is estimated at $100-140 billion.
“Fundamentally, this is a gradual tightening of restrictions rather than a significant increase,” said Foley & Lardner’s Mr. Swift. “If your goal is to undermine Russia’s economic ability to wage war in Ukraine, this is a necessary but not sufficient measure.”
But he added: “If the G7 want to have strategic influence, they really need to think about what they’re going to do about Russian gas.”