The MetalMiner take on initial sanctions imposed by the West on Russia

Although the West issued a new round of sanctions late on Sunday, it remains unclear what effect they will have. The new sanctions, including the prohibition of Russia flying over European airspace, as well as the funding of arms for Ukraine, came on Sunday. Nobody at MetalMiner believed the earlier sanctions through Friday would put an end to the invasion or cause Russia to turnaround and head back home. The additional sanctions announced on Friday, including a freeze of some of President Putin’s and some Russian oligarchs’ assets, still suggest little to no impact.
Perhaps surprisingly, the bravery of the people of Ukraine defending their homeland, has created the biggest impact. It certainly has made Russia look bad.
In two words: oil and gas
With its heavy reliance on Russian oil and gas, Europe simply can’t cut off Russia via sanctions due to its nearly total reliance upon Russian supply. Moreover, the sanction that called for cutting Russia out of the SWIFT banking system also didn’t occur. Germany and Italy put a hard stop to that one and categorically refused to adopt it. However, a compromise solution came into effect over the weekend, kicking out several Russian banks from participating in the SWIFT system.
Many traders think the sanctions are a joke as they report normal dealings with regard to import/export trade. So, business with Russian suppliers still appeared to operate normally as of last week. RusHydro, a Russian bank, named in one of the sanctions, along with Sberbank, used by suppliers in Europe, reports “business as usual,” as well with effectively, no change or impact. Freezing bank transactions and access to western markets will work just like anti-dumping cases – Russia will find plenty of workarounds. Moreover, Russia will run transactions through China if necessary.
Join the MetalMiner team for a 30-minute briefing on the aluminum and carbon steel markets and other key developments from the Russian invasion of Ukraine. The webinar runs from 11:00-11:30 central time on Wednesday, March 2.
In fact, China accidentally leaked some information in terms of how the Chinese media will cover the Russian invasion (hint: nothing negative about Russia).
As for a sanction covering US oil…
Surprisingly, the Biden administration did not add a sanction dealing with Russian oil at all. Had the US stopped buying Russian oil completely, that could have created some financial hardship. In addition, by bringing US domestic production back on, that too would help lower the price of oil. By stopping Russian oil imports, and helping tank the market, Russia would struggle to sell oil to China as well. 40% of Russia’s revenue comes from oil and gas which has increased in price nearly 50% from Jan 1 2021.
MetalMiner will include an oil forecast and adjust all long-term forecast ranges for non-ferrous and ferrous metals in its soon-to-be released Annual Outlook Q1 quarterly update.  
In addition, Biden should have issued immediate sanctions against Putin himself, as opposed to waiting a day. Furthermore, the US should also establish sanctions against China for helping Russia.
Putin betted on a gutless West that would not stand up to an invasion. He’s won tactically as of last week. And his latest nuclear threats suggest he feels threatened by how long it has taken to take control of Ukraine. How it pans out in the long term remains unknown. Ukraine is a large country to occupy. The going theory/end state involves the installation of a puppet regime by Moscow with Russia backing out within months. Ukraine will remain as a vassal state under Moscow’s control.
The markets appear to have started a recovery. Pity for the Ukrainians – the West has initially led them down the river only to appear to abandon them. The Ukrainians themselves appear to have launched a strong guerilla counterattack. Now the funding of arms from the West and the Starlink satellite turned on by Elon Musk to enable critical communications, may turn the tide and thwart Russia. Let’s hope someone has a strategy to de-escalate the nuclear talk.
 

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