The real war is still financial...
Smaller Chinese banks at risk from US secondary sanctions on Russia, warn experts
Experts say secondary sanctions are specifically levelled at Chinese banks that are believed to be helping Russia evade sanctions
Chinese and Indian banks could lose access to US dollar and correspondent banking services as secondary sanctions against Russia ramp up, experts warn.
“The risk is that they [Chinese and Indian banks] will lose access to G7 financial institutions and financial services, the dollar, and other assets held in in the US — but also broader G7 countries — could also be seized,” said Gonzalo Saiz, a research fellow at UK think-tank the Royal United Services Institute’s Centre for Finance and Security.
The warning comes just weeks after Raiffeisen Bank Russia, the largest European bank by assets still operating in the country, announced the suspension of all outgoing US dollar payments from the country, following warnings from US authorities that it could be “shut out” of the US dollar system, and the scaling up of secondary sanctions against Russia.
The US unveiled a major expansion of its secondary sanctions programme on June 12, granting the US Treasury the authority to sanction foreign financial institutions found to have acted for or on behalf of Russia’s defence sector. The number of entities considered part of Russia’s defence sector and its orbit more than doubled from 1,200 to 4,500 and includes additional banks not previously part of the group.
In May, according to Nikkei Asia, US authorities warned they were considering sanctioning Chinese financial institutions to clamp down on what they said was a “lifeline for Russian military production”. Chinese banks were warned again in mid-June by US officials at a meeting of G7 leaders in Italy.
In the case of India, Saiz said the risk of secondary sanctions is more related to its imports of Russian oil. He said the authorities wanted to remind India of its obligations under the oil price cap adopted by the G7, which aims to minimise Russia’s ability to finance its war against Ukraine using revenues from oil and gas exports.
“There’s been huge efforts dedicated to improving the oil price cap’s effectiveness, but India has been purchasing Russian oil above that price,” he said. However, given India’s “geopolitical significance” to the west, Saiz said authorities were trying to engage with the country to align it, to a certain degree, with the aims of sanctions. “The steps authorities are taking with India are not as hard as the US is hinting towards China,” he said.
Saiz said the US is specifically targeting smaller regional Chinese banks, which are facilitating payments for the export to Russia of Chinese-manufactured, dual-use goods (like semiconductors and other electronic items) that are used in both civilian and military applications. “Large financial institutions, both Chinese and Indian, even though they’re not compelled by their own domestic law to abide by G7 sanctions, are aware of the consequences of the loss of access to international financial services, so they have tried to stay away from breaching US sanctions,” he said.
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