Jorge Costa Oliveira
The limited effectiveness of various measures, including sanctions, to curb the supply of dual-use goods (and other critical items) to Russia’s war machine led the U.S. President to issue an Executive Order in December 2023, imposing new sanctions on foreign financial institutions that facilitate the supply of such goods.
Many banks from key countries (India, UAE, Turkey) that had been enabling these supplies began to refuse to conduct financial transactions related to them. Increasingly, banks, fearing sanctions—especially being cut off from the global dollar payments system—have heightened their compliance requirements and started requesting their clients guarantee that no individuals or entities on the U.S. SDN (Special Designated Nationals) list are involved in a business or benefiting from a payment.
Since early April 2024, the U.S. government has been issuing warnings that Chinese banks will not be exempt from these new sanctions, as evidenced by recent visits to China by the U.S. Secretary of State and the Treasury Secretary. China is Russia’s largest supplier, with Sino-Russian trade, according to Chinese customs data, reaching a record $240 billion in 2023 (+26.3% compared to 2022). According to American authorities, in 2023, 90% of Russia’s microelectronics imports, crucial for missile, tank and aircraft production, came from China, also attributing to Beijing the improvement of Russia’s satellite capabilities for use in the war in Ukraine. Blinken made a veiled threat: “If China does not act, we will.”
The April 24 edition of The Wall Street Journal, discussing potential new sanctions on Chinese banks, cites a recent report from CSIS, an American think tank, which states that Russian imports of high-priority Tier 3 (specific electronic and mechanical components used in Russian weapons systems) and Tier 4 items (CNC machines, used to provide precise parts for various weapon systems, from ammunition to aircraft) supplied by Chinese companies increased from 1,000-3,000 per month between September 2022 and February 2023 to 30,000 per month starting in March 2023, linking this surge to the meeting between Putin and Xi in Moscow that month.
However, although the CSIS report’s illustrative charts show this significant increase occurred on that date and that Chinese companies are the main suppliers (approx. 50%), they also show that roughly the same amount (collectively) is sold by companies from India, Turkey, Vietnam, the EU, the U.S., and other countries; demonstrating the lack of a causality nexus with the said meeting between the Chinese and Russian leaders.
The same report also highlights that “some of the same Chinese and Hong Kong companies that trade with Russian military suppliers also supply Ukrainian companies that supply the Ukrainian armed forces.” This poses a potential dilemma in the current sanctions strategy. Adding the significant increase in indirect exports to Russia via Central Asia, applying these new sanctions will not be easy.
linkedin.com/in/jorgecostaoliveira
No Comments