June 15, 2024: Economics almost always determines the outcome 0f a war. This is the case in the Ukraine war where one of Russia’s vulnerabilities turns out to be its trading and banking relationships with China. The problem here is that Chinese trade with western nations, especially Europe and the United States, is far larger and more valuable than trade with Russia. China obtains 5.1 percent of its imports from Russia while Chinese sales to Russia account for only 3.3 percent of Chinese exports. Most Chinese exports and imports are with the United States and Europe.

Western economic sanctions on Russia for the war hurt but its government and businesses had a lot of legal and illegal methods to keep the economy going despite the sanctions. Europeans and Americans noticed this and at the end of 2023 added financial institutions to the sanctions. This includes banks and the vital SWIFT (Society for Worldwide Interbank Financial Telecommunications) system that makes it possible for all member banks to transfer money across borders safely and efficiently. SWIFT is a vast messaging network used by financial institutions to quickly, accurately, and securely send and receive information, such as money transfer instructions. SWIFT doesn’t hold assets or move money around, but instead provides a secure messaging system for 11,000 banks and other financial institutions worldwide so member banks can quickly settle payments made for buying or selling goods or services.

Russia exports nearly 500 billion dollars’ worth of goods and services each year and imports about 200 billion of goods and services. With the sanctions on Russian use of SWIFT, their import/export activities began to collapse because there was no practical way to pay for imports or be paid for exports. SWIFT enables exporters and importers to quickly and easily make and receive payments. Without SWIFT you must deal with individual banks or find some other way to make and receive payments. The new sanctions prohibit SWIFT and banks, especially the ones that specialize in export/import transactions, from working with Russia. Few banks are willing to risk their access to the SWIFT system and normally import/report networks by violating the sanctions in continuing to work with Russia. Some Chinese banks tried to work out practical workarounds but gave up after a few months when they realized that they could be sanctioned and there were plenty of competing import/export banks willing and able to handle the business sanctioned banks could no longer service.

Russia found ways to continue importing and exporting after the banking sanctions came into effect. Despite that, throughout the first half of 2024, Russia found itself encountering more and more obstacles in financing its foreign trade. Russia could always find independent banks and smuggling networks to handle some trade, but at greater expense, including the risk of trade goods or payments being seized. This has been the case since they invaded Ukraine in 2022, were promptly sanctioned and adapted as best they could. These new banking/SWIFT sanctions are the most damaging of all sanctions imposed on Russia, while over two years of the original sanctions have significantly damaged the Russian economy. Inside Russia poverty rates are up and families of men mobilized, often unwillingly, into the army and sent to Ukraine, are angry and more frequently protesting in public. This is illegal in Russia but the protestors are so numerous now that there is no practical way for the government to arrest and imprison all of them. The Russian government still sends more troops to Ukraine but is also looking for some sort of compromise to end the war, and all those ruinous sanctions.