An opinion columnist writing for Bloomberg has identified two flaws that “fundamentally undermine” the United States and EU-led “sanctions regime” against Russia – and neither have anything to do with the use of crypto.
Since the start of the conflict in Ukraine, senior lawmakers in the USA and elsewhere have claimed that wealthy Russians will look to crypto to sidestep sanctions.
But the columnist, Paul J. Davis, appears to believe that conventional finance (aka tradfi) and politics provide far more effective loopholes than crypto transactions.
The first major failing with the sanctions is that “Russia is still allowed to sell all the fossil fuels it likes.” And secondly, Davis wrote Moscow “seems able to use the dollar earnings from those sales to support the ruble.” (Ruble is now down around 17% against USD since the invasion started one month ago, but it jumped over 50% since March 7.)
Doing this, he noted, allows Moscow not only to pump USD into propping up the RUB, but also pay directly for the import “of the tools of war” from countries that “haven’t signed on to the sanctions.”
The only way to close these “holes” is to ban all energy sales from Russia. But as EU nations still remain largely dependent on Russian oil and gas, such a move remains “unpalatable” even for the more hawkish of EU members.
Further, Bloomberg claimed that “Russia’s global oil and gas exports are bringing in about USD 900 million a day.”
Davis claimed:
“Russia’s energy trade has suffered but not nearly as much as expected initially.”
Oil is reportedly still trading by sea from Russia’s Baltic and Black Sea ports – with gas flowing by pipeline to both European nations and China.
Economists at the Federal Reserve Bank of Dallas were quoted as stating that the oil “might be exchanging hands at discounts to current high prices, but most of it is still moving.” Indeed, with the price of crude hitting USD 130 a barrel (only around USD 10 below the 2008 record high) earlier this year and “surging” last night, per S&P Global, such “discount” prices might prove hard to resist for some cash-strapped nations.
Yesterday, Tass reported that president Vladimir Putin has declared that the 48 nations on “unfriendly” terms with Russia over the war will be obliged to pay for gas in rubles.
As such, the idea that nefarious oil and gas deals will be struck below the radar of sanctions using bitcoin (BTC) and other tokens appears far-fetched to say the least.
Indeed, some have called crypto a “terrible choice” for people who want to evade sanctions – due to the transparent and immutable nature of the blockchain technology that underpins coins. Industry figures have also claimed that oligarchs are highly unlikely to use crypto as tokens are “more traceable than using United States dollars cash, art, gold, or other assets.”
A number of blockchain analytics firms have even offered crypto platforms the use of free, advanced sanctions violation-identifying software tools, further reducing the likelihood of Russian oligarchs exploring this route.
Fiat’s flaws appear to be conducive to Russian attempts to fight back against sanctions. Davis opined that “the scale of continuing energy exports” and the Russian Central Bank’s ability to “receive and dispense the resulting flow of foreign currency mean that being cut off from its existing reserves isn’t that painful.”
He added that capital controls and continued export income explain why the ruble “has not only not collapsed but rebounded from its lows.”
And while crypto leaves a long trail of digital breadcrumbs, the same isn’t true for cash.
Davis wrote:
“The trouble is that money is fungible: Dollars can be swapped for renminbi or rupees and then spent on perhaps anything.”
The endgame does not look particularly appetizing for Washington, in Davis’ eyes. He claimed that “if other countries are going to cooperate with Russia to help it use the dollars it is collecting from the energy trade,” then the United States and its allies would only be able to respond with “secondary sanctions.”