PremiumThe biggest factor in favour of exporters retaining their nerves over Ukraine is the dependence of Europe on Russia for its energy, in particular, gas. As much as 40% of the natural gas that Europe uses comes from Russia, through multiple pipelines. Europe is not keen to impose any sanctions that would prevent their ability to keep buying Russian gas
Indian exporters are reportedly worried about getting paid for their exports to Russia, in the wake of the US and European sanctions against that country in retaliation for the ‘military operation’ Russian president Vladimir Putin has ordered against Ukraine. They have no cause for worry.
To begin with, India has a trade deficit vis-à-vis Russia, $4.34 billion up to December. That means that Indian entities owe dollars, in the net, to Russia. In the eventuality of Russia not being able to make international payments as a result of western sanctions, it can always ask those who owe money to Russian entities to make payments on Russia’s behalf to those who are owed payments by Russian entities, while these make internal settlements amongst the counterparties involved. But things are unlikely to reach such a pass. Payments are likely to be made through regular channels.
This is because the West has not sanctioned all Russian banks. There are several banks that are still free to access and settle payments on New York-based dollar networks.
Finally, Russia runs a robust current account surplus, to the tune of 7.4% of GDP, according to the Economist Intelligence Unit. Its international reserves stood at $630.2 billion, as of 31 January 2022, according to the Russian central bank, of which foreign exchange reserves constituted $498 billion (the rest comprises gold, Special Drawing Rights and reserve position at the IMF). It has no shortage of dollars, with which to settle its dues.
The biggest factor in favour of exporters retaining their nerves over Ukraine is the dependence of Europe on Russia for its energy, in particular, gas. As much as 40% of the natural gas that Europe uses — and it uses a lot, not just for heating, the mainstay of traditional gas use, but also for the generation of power, given that Europeans are keen to fight climate change and gas produces only half as much carbon dioxide as coal does when burned to produce power — comes from Russia, through multiple pipelines. Europe is not keen to impose any sanctions that would prevent their ability to keep buying Russian gas.
That would rule out kicking all Russian banks of the world’s dollar networks. In the case of sanctions against Iran, not only were Iranian banks sanctioned, but the US had also announced secondary sanctions against any entity that transacted with the sanctioned Iranian entities. That meant that no western bank could make payments to the sanctioned Iranian entities.
If a similar level of severity is adopted towards Russian banks, European banks would not be able to pay for Russian gas, and that would create a very major problem. Europe might succeed in cornering much of the gas traded around the world’s spot markets. But that would increase gas prices, and oil prices would go up as well. French President Emmanuel Macron has fresh memories of the gilets jaunes (Yellow Vests) protests of 2018, triggered by his elevated taxes on petrol and diesel. French presidential elections are slated for April this year. Would Macron want to set off sanctions that would raise petrofuel prices and send gilets jaunes on to the warpath again?
There is reason to believe that the Europeans value their own economic interests above Ukraine’s desire to join the North Atlantic Treaty Organisation. The Dutch are lobbying to keep diamonds out of any sanctions, and the Italians, luxury goods, reports the New York Times.
So, there would be sanctions against Russia, against powerful Russians, a bar on the Russian government raising debt on European capital markets, and against some Russian banks. But some Russian banks that can receive dollar payments would be spared, and left free to operate, to allow Russian export of gas to continue. Those banks can settle Indian exporters’ dues as well.
Right now, Indian exporters to Russia should stop worrying, and get back to exporting. A quiet couple of hours spent rewatching the movie, Kungfu Panda, in particular, Master Shifu’s discourse on Inner Peace, might provide added comfort.
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