Sanctions Slapped on Russian Metals Hurt West and Undermine Dollar’s Dominance
19:21 GMT 16.04.2024 (Updated: 10:35 GMT 17.04.2024)
© Sputnik / Mikhail Voskresenskiy
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The joint sanctions by the US and UK against Russian aluminum, copper and nickel exports damages Western economies and undermines trust in the dollar, whereas its effect on the Russian metal industry is less dramatic as it had time to prepare for the worst in light of past Western restrictions.
Last Friday, the US Treasury Department’s Office of Foreign Assets Control imposed a ban on imports of Russian-made metals. Trading of Russian aluminum, copper and nickel is prohibited at the London Metal Exchange (LME) and Chicago Mercantile Exchange (CME).
Most of the experts agree that in this situation, the Shanghai Metals Market (SMM) will most likely get more supplies from Russia, and they will be traded in Chinese yuan. Chinese traders and other involved parties in the reorientation of Russian exports from West to East have all the reasons to be happy about it.
“There is always a way to work around sanctions. If something is desperately needed, people will find a way [to buy it],” Thomas Pauken, a consultant on Asia-Pacific affairs and author of a book on US-Chinese trade relations, told Sputnik. “The customers will just have to go to certain individuals, who are probably going to charge extra fees for the products that were sanctioned by Washington, Brussels or London… The more you sanction, the more new traders will benefit.”
Dr. John Gong, professor at the University of International Business and Economics, and also a China Forum expert, indeed expects Chinese traders and China as a nation to benefit from the new arrangement.
“China benefits from two perspectives. First, China reportedly enjoys a small discount on prices asked [by Russia] compared with, say, prices at the British LME. The Washington narrative often portrays this as China providing some kind of support to Russia. China firmly rejects [this accusation], as its principled neutrality position implies a normal trading relationship with Russia in civilian areas. The second benefit from China’s perspective lies in the fact that now more trade in basic commodities will be transacted outside of the dollar realm,” Dr. Gong told Sputnik from Beijing.
For Russia, the positive side of the Western sanctions against its metal industry lies in higher world prices for the Russian-made metal products.
On the first day after the announcement of this Anglo-American move against Russian metal exports, prices for aluminum soared by 4.9% at LME in London. When the trade resumed on Monday the prices rose further by 5.44%, as compared to the “pre-sanction” level. Nickel rose by 8.8%.
29 October 2023, 17:37 GMT
The explosion of prices can make sanctions against the Russian metal industry senseless, since Russian companies will compensate their losses via gains from higher prices.
“If the prices really skyrocket, then the sanctions never happened,” said Thomas Pauken.
In fact, the West gave Russian companies time and incentive to reorient their exports to China by gradually making its sanctions against Russian industries more and more punitive between 2014 and 2024.
“In 2022, the US revoked permanent normal trade relations status from Russia, thus spiking duties on dozens of import categories including metals. For instance, duties increased to 18.5% from 2.6% for unwrought aluminum and 6.6 cents/kg from 0% for unwrought nickel,” S&P Global detailed. “And, in 2023 the US applied an additional 200% tariff on aluminum imports from Russia.”
Coupled with US sanctions imposed on Oleg Deripaska, the CEO of the RusAL, Russia’s biggest aluminum trader, the American campaign created a very bad environment for the Russian metallurgical business in the US, which once flourished in the mid-2010s.
Dr. Gong underscored that the US is shooting itself in the foot with its sanctions against Russian metals. Not only are Americans depriving themselves of Russian aluminum, nickel and copper, they are also undermining the dominance of dollar.
“Russia is a major world supplier of key commodities, including the metals... So, trading these commodities in currencies other than dollar obviously undermines the importance of American currency in global trade. But this situation is Washington’s own creation,” Dr. Gong told Sputnik.
Most of the observers say that the process of Russia’s reorienting its business to Asia actually started quite a few years ago. Now this process will just be brought to rapid completion.
Thomas Pauken, too, shared the observers’ views, recalling when anti-Russian sanctions not only helped the Chinese economy, but also led to de-dollarization of trade between Russia and China, among other countries.
“I live in China, and my household electric bill is one-tenth of what Americans would have to pay. Russian energy supplies were very helpful for Chinese economy… But in order to sell and buy sanctioned products, traders have to use a different currency [not a dollar] to avoid their trade being traced [by the US]. This happens, when a certain trade is not allowed, but still goes on.
