Transcription
Hi, welcome back to Joe Blogs. In today's episode, I want to talk to you about what's happening in the Russian economy and specifically to talk about some very worrying sanctions that have just been announced by the European Union from Russia's perspective.
Now, if you're following the channel, you'll know that this is actually the second part of this video. In the first part, I talked about the energy sanctions, what's happening with LG and oil because the EU is now ramping up those sanctions and particularly it's focusing in on China and India as buyers of that oil. And this is following on from Donald Trump's recommendation. He recently sanctioned India in terms of the tariffs that it's having to pay to import goods to the USA, its biggest single export market. and he called upon the EU and the rest of the G7 to follow suit. So, what we are seeing is that is now happening.
But in today's video, we're going to go through the financial and the technical sanctions. And the reason that I split this video into two is that I've had some feedback from people saying that they would prefer to see shorter videos rather than 30inute videos. So, I'm just experimenting with the different types. So, please let me know in the description below what you think of that, whether you'd prefer to see shorter or longer videos. But also, if you haven't subscribed yet, please hit that subscriber button.
So, let's hear from Ursula Vanderlaya, who's the leader of the European Union, as to what's happening with regards to the financial sanctions. "We're targeting the financial loopholes which Russia uses to evade sanctions. We're putting a transaction ban on additional banks in Russia and on banks in third countries. We're stepping up our crackdown on circumvention. As evasion tactics grow more and more sophisticated, our sanctions will adapt to stay ahead."
So, I'll just stop her there. What she's saying is that they're going to add more Russian banks. So, this is going to be more comprehensive in terms of all of the financial institutions in Russia, but also banks in other countries that are still facilitating payments. And we've talked about this in previous videos, but we've got banks in China, particularly on the border between Russia and China. Lots of banks, small banks, have still been allowing payments to go through. So, the European Union is going to crack down on making sure that every single financial institution that's still handling Russian payments is on the list of sanctioned entities. And of course the problem that you have if you're found to be dealing with a sanctioned entity then you get sanctioned yourself. So that's secondary sanctions. So Chinese and Indian banks particularly will be targeted by this European crackdown.
"For the first time our restrictive measures will hit crypto platforms and prohibitive transactions in cryptocurrencies."
So the European Union is now stepping up the sanctions to take crypto into account. And if you've been following the channel, you'll know that since the war started, Russia has actually been using cryptocurrency payments as a form of still making payments and receiving payments. And if we have a look at this chart, it's difficult to actually get any official figures. Obviously, Russia is not publishing details of what it's doing on the crypto markets and also the crypto markets themselves are whilst there is public record, nobody's actually publishing anything to say this is how much uh Russia is using. But these are the latest estimates in terms of how much Russia has been using the crypto markets dating back to 2021. So in that year, which was before the war in Ukraine started, it was estimated that around about $20 billion worth of transactions were undertaken in Russia, that increased three times in 2022 to 60 billion. So that was a surge as a result of the sanctions. So lots of businesses and state related entities started using crypto receiving payments for crossber transactions. In 2023, it was estimated that that increased to a hundred billion dollars. So, this was becoming more mainstream for a lot of Russian entities. In 2024, it's estimated to have increased to 140 billion. And in 2025, it's estimated that the figure will increase further to 180 billion. And lots of different new methods are now appearing for Russia to use. So, it's using lots of different stable coins. And stable coins, if you're not familiar with the crypto markets, are basically linked to other currencies. So the US dollar is the main one. So you have a oneto-one linkage. So basically, they don't tend to fluctuate in value so wildly as other cryptocurrencies. It's essentially a way of receiving payments that's linked to what's happening with the US dollar. So you're not looking to speculate on those markets. You're looking to actually just make transactions. So that's what Russia has been doing. So, the European Union has now announced that it's going to focus in on these crypto markets and try to prevent Russia receiving and making payments through the crypto markets.
"We're listing foreign banks connected to Russian alternative payment service systems and we are restricting transactions with entities in special economic zones."
Now, in terms of payment systems, one of the first things that happened following Russia's invasion of Ukraine is that it was banned from using the Swift payment system, which is generally speaking what most companies use for international transactions historically. And so, Russia then had to start creating its own systems. And you can see from this chart here, I've put together some of the systems that Russia is using. So, we've got Swift listed on the left hand side here. And you can see that in 2021, Russia processed around $500 billion worth of transactions through Swift. And since they they've been sanctioned, you can see that the number of transactions has reduced materially. There are still some Russian companies that are able to access it that haven't been sanctioned. So you can see there is still an element of payments going through it, but it's significantly less than it was back in 2021.
So Russia created its own system SPFs and you can see that in 2021 there was relatively light usage of that around 50 to 80 billion. So it was around 10 times smaller than the level of payments going through Swift. But over the last four years we've seen a significant increase and it's estimated this year that those payments could be as high as $250 billion. So this system will be targeted by the European Union. So, up until now, Russia has been able to use this system without any problems. But any company that's now found to be using this will now come under the on the radar, and the European Union will be closing down those payments for any companies that are within its borders that are trying to make payments to Russia or receive payments from Russia.
And I've listed some of the other uh ways that Russia has been making payments. It's got a direct settlement system, SIPs, with China. And you can see that over the past 5 years, the volume of transactions has increased hugely from around 30 to 60 billion to between 250 and 450 billion this year. Now, the European Union won't be able to stop those payments, but I thought it was worth listing it just to show you what Russia is doing. Crypto we've just talked about. Gold is something that Russia is using to a relatively small amount, only around about 20 to 35 billion. And Russia is actually increasing the amount of bartering that it's doing. So it's exchanging goods for goods. So it was recently reported in the press that Russia was paying for things with some of its crops or wheat and corn, things like that. It's sending large volumes of those exports in exchange for importing other goods. So going back to the good old days before we had any currency of countries actually just swapping products. So that really gives you an indication as to some of the challenges that Russia is facing right now.
"In parallel, as I announced last week, we are working on a new solution to finance Ukraine's defense efforts. This is based on the immobilized Russian assets. We must be very clear. This is Russia's war and the perpetrator must pay for it. With the cash balances associated to these Russian assets, we can provide Ukraine with a reparations loan. The assets themselves will not be touched and the risk will have to be carried collectively. Ukraine will only pay back the loan once Russia pays reparations."
As you're probably aware, at the time the invasion of Ukraine started, Russia held cash balances all around the world with lots of different financial institutions. At that time, it was estimated to be around $600 billion. Now, Russia was able to move some of that money, but this table here shows how much was actually captured. So, you can see that it's around about $330 billion. And the biggest chunk of that is held by the European Union in the euro clear system around $220 billion equivalent. And the European Union has been talking about using these assets for a long time. It actually passed a ruling recently whereby the interest can be used to help Ukraine. So the money that's being generated by those assets is being taken off and sent to Ukraine. But legally those assets are still frozen. and they are technically owned by Russia and that no ruling has been passed to move ownership from Russia to any other country. In fact, that's probably unlikely.
So, what we're hearing here is that the European Union is going to issue a bond to Ukraine called a reparation bond and that money will be given to Ukraine and it will only have to pay it back once Russia gives it the money to pay for all of the repairs from the war. So, we've got a circular situation here whereby the frozen Russian assets will remain owned by Russia, however, they're frozen. So, Russia can't access them. That capital will then be given to Ukraine by all of the different countries that's holding it. Ukraine can then use that money to defend itself in the war or repair its land, but probably more likely to buy more weapons to defend itself. If the war comes to an end, Russia will then legally have to pay for all the reparations. That's the logic here. So, Russia would then give all that money back to Ukraine. Ukraine would then give that money back to the European Union countries and then at that point the frozen assets could be released and given back to Russia. If the war carries on and there isn't a peace agreement and Russia doesn't pay for the reparations, then basically the Russian assets will remain frozen. The loan will remain in place to Ukraine. Ukraine will spend that money and so Russia would never get its money back until the war comes to an end and it pays the reparation. So essentially what the European Union has come up with here is a way of giving more money to Ukraine and justifying it by holding those Russian assets.
"We add new direct export restrictions for items and technologies used on the battlefield. We also list 45 companies in Russia and third countries. These companies have been providing direct or indirect support to the Russian military-industrial complex in a war driven by innovation. Cutting off Russia's access to key technologies is crucial above all when it comes to drones."
So, what we're hearing here is that the European Union is now focusing in on the technology businesses within Russia that are facilitating the building of drones and other equipment that's being used in the war. So, those companies are going to be sanctioned. They'll no longer be able to buy any equipment or IT or chips, all of those sort of things from the European Union. And that's going to have wide-ranging impact on Russia, not just on the battlefield, because many of these Russian companies are also at the cutting edge of Russian technology. So they're developing things in the oil industry, the energy industry, basically everything that's going on in Russia is dependent on its own tech businesses to be able to produce things. So those companies are going to find it difficult to be able to source all of their equipment and technology. That means that they will be reducing in terms of their sales. That will impact on their research and development. And all of this is going to slow down everything in Russia in terms of technological improvement. So this could have really damaging impacts on the long-term viability of the Russian economy.
So what's the summary and conclusion today? Well, I wanted to post this video because I think the latest sanctions that have been announced by the European Union are probably the hardest hitting that we've seen out of the 19 rounds that have been issued since the war in Ukraine started. And what we heard from Ursula Vandera today is that she's now focusing in on some of the absolutely key issues. So, I talked in the previous video about oil and liqufied natural gas that the European Union is really trying to close down the buying of that oil because India and China have been funding the war in Ukraine indirectly by buying huge amounts of crude, refining it and then selling it back to the rest of the world. So, lots of Western companies have been buying Russian oil that's passed through Chinese and Indian refinery processes. So the European Union is now going to start focusing in on China and India and other refineries that are continuing to buy that oil. So that's a positive in terms of cutting the revenue.
But in today's video, we've talked about the financial system because Russia has found ways of being able to continue to make and receive payments. So the European Union is now closing down more of those channels. It's focusing in on crypto and the other channels that have been created by Russia. So, that's going to cause problems for Russian entities that are trying to receive money. And if you've been following the channel, you'll know that a lot of Russian businesses are already struggling with cash flow and profits. But we've also heard that the European Union is now closing in on the details of a bond that it's going to issue backed by the frozen Russian assets that will give Ukraine access to more capital to be able to fund its defense. And also the European Union is focusing in on technology businesses in Russia that are creating drones and other equipment that's used on the battlefield. And those sanctions will hurt those businesses. And that will impact not just on their ability to continue producing weapons, but also on their ability to continue producing technology, which is going to be critical to the long-term success of the Russian economy.
So, the overall summary of today's video is that the latest sanctions announced by the European Union look like they have got the most teeth out of any of the 19 rounds that we've seen so far. And they also align with Donald Trump's suggestion recently that the European Union and the G7 should be targeting India and China to stop them buying Russian oil.
So, hopefully you've enjoyed today's video, you found it useful, informative, and thoughtprovoking. If you've liked what I've said, then please give me a thumbs up. Thank you for watching this video all the way through to the end. And thank you so much to everyone that supported me. If you bought me a coffee, sent me a YouTube super thanks or signed up as a Patreon, a member, or buy me a coffee member, thank you for that support. Really appreciate it. And here's something to put a smile on your face.