Sanctions put Russia in an economic stranglehold and the West has even more options, experts say

“It’s a bit like a massive aerial bombardment (in financial terms)”

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The Russian currency plunged and its stock market seized up on Monday after Canada and other G7 countries stepped up financial sanctions aimed at pressuring Moscow to back down from its invasion of Ukraine.

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The measures targeting Russia’s central bank have frozen a significant portion of the country’s $650 billion in reserves, preventing the government from using those emergency funds to prop up its economy against Western onslaught, analysts said.

On Monday, Deputy Prime Minister Chrystia Freeland said that all Canadian financial institutions were barred from engaging in any dealings with the Russian Central Bank, and that Canada was also imposing an asset freeze and a trading ban. with Russian sovereign wealth funds.

Additionally, Prime Minister Justin Trudeau said Canada would ban imports of crude oil from Russia. Canada imported energy products from Russia worth about $290 million from Russia in 2021, according to Statistics Canada, with Quebec and Newfoundland and Labrador accounting for nearly all.

While not a large amount compared to other countries, the bans and bans come on top of international sanctions triggered in recent days, including a statement over the weekend that some Russian banks would cut SWIFT , global interbank messaging. platform that facilitates most international transactions.

  1.     Smoke rises from a Russian tank destroyed by Ukrainian forces at the side of a road in the Lugansk region on February 26, 2022.

    Canada bans crude oil imports from Russia and sends anti-tank weapons to Ukraine

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And observers say the West still has more economic firepower to deploy if needed.

“It’s a bit like a massive aerial bombardment (in financial terms),” said Mark Warner, an international competition, trade and investment lawyer at MAAW Law.

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The risk that Russia could be further isolated from the global economy accelerated Monday’s run on the country’s currency.

The rouble, which has been under pressure since before Russia followed through on its threat to invade Ukraine last week, fell to its lowest level on record. It sank more than 30% after the leaders of Canada, the European Commission, France, Germany, Italy, the United Kingdom and the United States issued a joint statement condemning the Putin’s “war of choice” and pledging to ensure the withdrawal of “certain Russian banks” from the SWIFT system.

“Those holding ruble deposits in Russia, including businesses, sensing that the Russian banking system might be cut off from the rest of the world, rushed to try to convert them into dollars or other Western currencies held there. ‘stranger,” said Avery Shenfeld, chief economist. at CIBC Capital Markets.

“All this selling, without the need for an offsetting purchase, creates a huge imbalance that drives the ruble down.”

Clifford Sosnow, a partner at Fasken Martineau DuMoulin LLP law firm in Toronto, said the combined sanctions would make it “extremely” difficult to move dollars to and from the Russian market and cause “widespread disruptions to supply chains involving the Russia”.

He added that the latest sanctions are in addition to existing sanctions related to Russian investments in certain oil production operations.

“Withdrawing Canadian and other countries’ banks from SWIFT access to Russian banks and preventing the Central Bank of Russia from accessing foreign exchange reserves…makes any international trade with Russia difficult, including oil purchases and gas from Russia,” said Sosnow, who is president of the international trading group at Faskens.

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However, some observers have noted that there is still some firepower left in the financial arsenal, even though its use could hurt some G7 countries that are still heavily dependent on Russian oil and gas exports.

An example of restraint can be seen in the decision not to cut all Russian banks from the global SWIFT interbank network, which will allow some payments to continue.

“While public opinion may demand more, for now the SWIFT-related sanctions are likely steep but not overly negative,” Citi analysts led by Dirk Willer said in a note to clients on Monday.

Europe, and in particular Germany’s heavy reliance on Russian natural gas, is pushing G7 countries, including Canada, to exert as much pressure as possible on banks, oligarchs and ordinary citizens without taking measures so widespread and comprehensive as to compromise these energy resources. imports, Warner said.

“It’s obviously a very fluid situation, but that’s the architecture…to keep these countries out,” he said. “If that changes, we’ll know right away because…it would actually be (the financial equivalent of a) nuclear attack.”

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