Almost every country that has been severely sanctioned ended up becoming less developed or underdeveloped. From Afghanistan to Iraq, Cuba to Venezuela to Iran etc.
Russia is currently the most sanctioned country in the world with more than 5,700sanctions ranging from financial systems, to trade commodities to software, engineering artifacts, among others.But how are the sanctions affecting Russia and what can Africa and developing countries like Ghana learn from this?
First of all, about 45% of Russia’s Gross Domestic Product comes from the sale of oil and gas. Russia is currently ranked the second largest exporter of these commodities after Saudi Arabia.
Prior to the conflict in Ukraine, most of Russia’s oil and gas were delivered to Europe, especially Western Europe. For example; Germany alone depended on Russia for about 40% of its oil and gas demands, a move former president Donald Trump criticized in 2018 as “Germany on course to becoming totally dependent on Russian energy if it does not immediately change course”.
Donald Trump told NATO Secretary General Jens Stoltenberg, during a summit in July, specifically singling out the Baltic Sea pipeline called Nord Stream 2 that “Germany, as far as I’m concerned, is captive to Russia because it’s getting so much of its energy from Russia”.
When shipments of these products were carried out, countries paid for them in Euros and US dollars reportedly through their central banks.So, sanctioning Russia could also mean freezing payments meant to be made to Russia for products delivered.
Not just that Russia’s central bank had large amounts of money stored in assets from other countries.
But sanctions from these countries targeted Russia’s foreign reserves, since then, the decision to keep so many assets overseas seem to be a different story for Russia as these assets have been frozen completely.
The billions in foreign assets included government securities as well as foreign deposits.
More than $71 billion of the frozen assets are with France. Japan accounts for $58 billion in frozen assets.
Russia’s President, Vladimir Putin, has called out the move as theft and Russia’s law makers such as the State Duma Speaker Vyacheslav Volod has said Russia should retaliate by confiscating properties owned by Western powers in response to a proposal by U.S. President Joe Biden to transfer the frozen assets of Russia including seized assets owned by Russian oligarchs and give the proceeds to Ukraine.
However, countries that have sanctioned Russia have repeatedly called out Russia to respect the territorial integrity of Ukraine in accordance with the UN charter and to withdraw troops from Ukraine immediately.
So freezing such oil funds and other Russian assets in one way or the other are said to be a way of finding solutions to the crisis in Ukraine, according to these countries.
However, after payments for oil and gas were made, the funds were transferred with the help of the financial messaging system known as SWIFT. SWIFT stands for Society for Worldwide Interbank Financial Telecommunication. Before the conflict in Ukraine, more than 1 percent of those messages were reported to involve Russian payments.
SWIFT is jointly owned by over 11,000 banks and institutions in more than 200 countries and it is overseen by the 11 national banks of the G10 countries including Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, United Kingdom, United States, Switzerland, and Sweden.
Russia has been taken out of the SWIFT banking system.This means payment of oil and gas can no longer be made or can be made with extreme difficulties under different circumstances.
According to President Vladimir Putin, payment for one’s own resource in a foreign currency ideally makes no sense. But how did we arrive here?
In the 1970s, there was a great economic crisis that plunged oil prices to as high as USD $4This was unheard of as at that time.
There was a need to find a solution to such crisis as well as find a stable means of trading globally that will ensure stability in prices at least for essential commodities such as oil and gas.
The United States of America, one of the largest consumers of oil and gas, and Saudi Arabia, the largest oil exporter, agreed to trade for such commodities in US dollars.
The trade in petrol for dollars is what became known as the petrodollar system. The petrodollar system has been in place since then, and has been a win-win for both countries. It strengthens the USdollar as more countries need dollars to trade in such commodities.
In fact, according to multiple reports, there are more 100USD notes outside the United States than in the United States. Oil-producing countries also have a stable currency with which to trade.
The SWIFT financial messaging system, as previously explained, was also developed in 1973 to ensure that payments were made with little or no difficulty. Since then, these two powerful systems, the petrodollar system and the SWFT financial messaging system, have been one of the major strengths of the United States and Western countries.
Unconfirmed reports even suggest that countries that decided to change the petrodollar system were invaded or sanctioned by the US under the pretext of intervention, citing the case of Libya’s Muammar Al-Gaddafi, who wanted to replace the dollar with gold in purchasing Libyan and African oil and gas.
Unconfirmed reports/rumors suggest that, countries in the Middle East/West Asia and other parts of the world with such resources have faced similar interventions. Venezuela, Iran, and Iraq being typical examples.
However, the idea that exiting the petrodollar system is considered an art of war by countries such as the United States is based on unconfirmed reports that have yet to be proven by any recognized investigation body such as the United Nations.
In fact, the invasion of Libya was carried out by allied forces in agreement with UN member states under the Security Council resolution 1973 (2011) on March 17 which authorized the use of force in Libya to protect civilians from attack.
President Vladimir Putin in 2011 criticized the allied forces for bombing Gaddafi’s palaces, despite the fact that this was not part of the agreement. The question of whether that assertion was true is one for another day.
Muammar Al-Gaddafi was also assassinated by a faction of his own Libyan people, despite reports that, that faction received support from the Barack Obama-led US administration.
India and China are currently considered highest consumers of oil and gas and Saudi Arabia is still considered the largest exporter of these products as well as De-facto chair of OPEC+.
Both India and China have refused to condemn Russia for its use of force in Ukraine and have settled on neutral stance.
Infact India has classified their stance as multiple-alignment based on national interest. India and China continue to purchase Russia’s oil and gas at alarming rates.
When India’s external affairs minister, Subrahmanyam Jaishankar, was asked why his country is supporting Russia in the Ukraine conflict by purchasing Russian oil, he concluded that India’s decision is based solely on market forces and India’s national interest.
India maintains trade relations with both Russia and the Western world, including the United States and Ukraine.
The US recently revised its sanctions against India, and Treasury Secretary Janet Yellen stated that India can buy as much Russian oil as it wants but cannot use western services such as shipping, insurance, and financial services in such transactions.
India continues to benefit from discounts on Russian oil purchases, and India’s external affairs minister, S. Jaishankarhas, has stated that India will continue to buy Russian oil because the relationship has benefited India, even as the G7 maintains a price cap on Russian oil.
China has also decided to prioritize its national interests and has asked both parties to analyze both sides, particularly western parties to analyze Russia’s legitimate security concerns for invading its neighbor, referring to absorbing Ukraine into the North Atlantic Treaty Organization and developing military infrastructure near the Russian border.
However, according to CNBC and TASS, President Joe Biden refused to accept President Vladimir Putin’s red lines, even as Russia’s military built up near the Ukrainian border, because the US recognizes Ukraine as a sovereign country with the right to join any legitimate association.
But whether or not this poses a threat to Russia’s security is a question for another day.
The conflict has caused disruptions in the oil and gas market since March 2022 leading to a sharp increase in prices of petroleum products to as high as US$120.The US has since put pressure on OPEC+ to increase its oil output in order to help lower prices.
However, this has not resulted in many positive outcomes, as OPEC+ has done the opposite by reducing its oil output by 2 million barrels per day beginning in November 2022. This isn’t the first time something like this has happened.
In fact, the organization reduced output by 10 million barrels per day in 2020. As a result, reducing output cannot be interpreted as an act in support of Russia.According to OPEC+, such actions are taken in response to market forces in order to stabilize the price of petroleum products.
Considering the sanctions, decisions of countries to protect their national interests, and the ongoing conflict, Russia appears to have discovered the perfect venom to fully implement the ideas it has been developing for years without necessarily calling it an art of war.
For example, following the 2014 Crimean crisis, which incorporated Crimea into Russia, despite the fact that Crimea is still not recognized by the majority of states and international organizations, Russia faced severe economic sanctions, forcing them to develop systems to deal with such future occurrences, such as the System For Transfer of Financial Messages (SPFS), or in Russian,
Системапередачифинансовыхсообщений (СПФС). This is an equivalent of the SWIFT financial messaging system. At the end of 2020, it was reported that 23 foreign banks from Armenia, Belarus, Germany, Kazakhstan, Kyrgyzstan, and Switzerland were linked to the SPFS.
In March 2022, the Russian Central Bank stated that approximately 400 users were connected to SPFS, including 52 foreign organizations from 12 countries and other Russian companies, but that they would not be forced to list them.
The Chinese have created a comparable system known as the Cross-border Inter-Bank Payment System (CBIBPS). These systems are intended to replace the SWIFT Financial Messaging System and integrate them into the global market.
Now that Russia appears to have an alternative to SWIFT and believes it has little to lose from the western world, they are demanding that countries that are not friendly to Russia pay for Russian products in Russian rubles rather than US dollars or Euros.
Unfriendly countries and businesses must open two accounts. One account in Russian rubles and one in euros. Payments will then be made in Euros, but the Russian Federation will receive Rubbles from Gazprom Bank. As a result, the Russian Federation will receive the funds in rubles.
Germany has called out such move as blackmail as it contradicts existing contracts.“What we have learned so far boils down to the fact that there are fixed contracts everywhere, where the currency in which payment is made is also part of the contract,” said Chancellor Olaf Scholz.
Germany’s Finance Minister Christian Lindner has also said his country would not be cowed by Putin’s demand to use Russian currency to pay for energy imports. But Russia also insists it won’t be possible to stick to previous means of payment when their assets are being frozen.
Russia continues to threaten to halt supplies to any of their list of unfriendly countries that do not abide by the new rule of ruble payment. Poland and Bulgaria for that reason were cut off from Russia’s supplies for not conforming to Russia’s demand.
But with constant demand for energy, there is a need to find a solution. Uniper for example stated that: “We consider a payment conversion complaint with sanctions law and the Russian decree to be possible.
For our company and for Germany as a whole, it is not possible to do without Russian gas in the short term”.
The European Union has since adopted a guidance for companies with three main tenets. That is; i) uphold EU sanctions ii) abide by Vladimir Putin’s decree iii) Secure natural gas for Europe.
Considering the Ruble payment structure explained above, the payment can be considered made only after the Euros have been converted into Rubles.
In this case, the conversion of Euros to Rubles can only be made by the Russia’s central bank which is also under sanctions but the EU new strategy is to pay in Euros, get confirmed for making such payment, what happens next is Russia’s business.
This strategy in effect fulfills all the three tenets listed above.As to how Russia will react is another issue.
One will ask, why don’t countries like Germany look up to a more friendly country like Saudi Arabia or Qatar or even African countries like Nigeria and Ghana for their Oil and gas demands.
This issue is mostly due to cost. It is cost effective to transfer gas by pipelines than by big ships. This is one of the reasons for having high prices for US LNG than Russian gas.
Oil exporting countries such as Saudi Arabia are also said to be benefiting from the high oil prices. In fact, Oil price has reported that Saudi Arabia booked an almost 10% increase of its GDP.At 9.9 percent, Saudi Arabia’s economic growth during the first quarter is the highest since the third quarter of 2011, according to Al-Jazeera.
This growth is due to the high increase in oil activities by 20.3 percent,” Aramco reported a net profit of US$39.5 billion for the first quarter, thanks to higher oil prices. This was an 82 percent annual improvement and a record quarterly profit for Aramco since it went public three years ago.
However, all hopes are not lost, Reuters reported that Norway is allowing a combined 2 billion cubic metre (bcm) increase in exports to the EU. The EU has also signed a gas deal with Azerbaijan to double its gas supplies to reach about 20 billion cubic metres to the EU by 2027.
Until then, Russia continues to benefit from its oil and gas trade in Ruble while importing less due to numerous sanctions on it.
The central bank of Russia increased interest rate to about 20% and restricted transactions in foreign currencies significantly. The result has been the strong Russian ruble. The Russian ruble has been in its highest value since 2014.But all is not well as it may appear.
The World Bank earlier projected Russian GDP to contract by 11.2% in 2022. Recently the IMF also forecasted a contraction of around 8.5% this year. The Central Bank said the Russian economy will not start to recover until the end of 2023.
LESONS FOR GHANA AND THE AFRICAN CONTINENT
It is sad that human lives, civilian infrastructure,economic development continue to be sacrificed each day for reasons difficult to be understood while such issues could be settled in a more human way through diplomacy.
The sad part is, both the United States of America and Russia have not ratified the International Criminal Court Treaty. This even makes it harder to prosecute offenders of international crime under such circumstance.
African countries should learn from not just how conflicts and sanctions destroy countries infrastructure, socio-economic development and put human lives at risk but also how foreign interference in internal political structures can put a country’s sovereignty at great risk and to continue pursuing peace and diplomatic solutions in solving its problems.
Over the past decades, not only have Africa experienced series of civil wars like the Rwandan genocide, The Liberian Civil war, The Sierra Leone war, The war in Cote d’Ivoire, Africans were also caught up in a battle of ideologies that is capitalism and communism between the United States and the soviet Union like the 1960 Congo crisis, 1966 Namibian war of Independence, 1975 Angolan civil war, the 1977 Ogaden war in Ethiopia.
In fact article 41.1 of the Vienna Convention on Diplomatic Relations (VCDR) 1961 states that Without prejudice to their privileges and immunities, it is the duty of all persons enjoying such privileges and immunities to respect the laws and regulations of the receiving State. They also have a duty not to interfere in the internal affairs of that State.
This means under no circumstance should even diplomats interfere in the internal political structure of the country.
However, the idea of European solidarity in overcoming what it considers a threat to its security and values is worth learning from. EU has since February 24, imposed collective sanctions against Russia.It has relied on one another for policy adoption as well as the supply of military artifacts and energy products.
Africans, unlike the EU, are divided on foreign policy. For example, South Africa has stated that they will not be bullied into taking sides in a conflict that does not concern them, Rwanda has requested that the US respect its sovereignty, and Yoweri Museveni (President of Uganda) stated during a visit by Russia’s Foreign Minister (Sergey Lavrov) to Uganda that he continues to stick to his response during the cold war era, and that he is neither pro-east nor pro-west, but rather pro-himself.
Ghana, on the other hand, has strongly condemned Russia’s actions in Ukraine and has stated unequivocally that it will not recognize any territory taken by force in the Donbass region as part of Russia.In fact, countries with military regimes such as Mali and Guinea are going even further by inviting a Russian private military group known as the Wagner group to assist them in their internal political conflicts.
In March 2022, UNGA held a vote condemning Russia’s use of force in Ukraine and calling on them to withdraw troops from Ukraine, 17 African countries abstained, 28 countries voted for the resolution including Ghana and the rest voted against or were absent.
Countries such as India have considered the consequences of siding with one side on their growing population and have decided to promote peace lectures and humanitarian aid to people affected by the ongoing conflict while continuing to trade with all parties involved, directly or indirectly.Africans, on the other hand, have a different story.
After meeting with Ugandan President Yoweri Museveni, US Permanent Representative to the United Nations Linda Thomas-Greenfield stated that African countries are free to buy Russian agricultural products such as wheat and fertilizer but will be sanctioned if they buy sanctioned Russia commodities such as oil and other sanctioned products.
Russia on the other hand have managed to build an economy less dependent on others for at least basic services such as internet servers, manufactured products, technological devices etc.
For example, unlike China and Russia where We chat, TikTok, Yandex ,VK, MIR cards and Union pay are more popular among its citizens, Africans,particularly Ghana, mostly depend on google and meta for its services.
In a situation where Google is shut down in Ghana for instance, the whole digital economy may seize to operate. There is no alternative to financial systems such as SWIFT or MasterCard and Visa
Africa lacks basic infrastructure and services to make it competitive in the global world, and it is about time Africa looked into building such robust economy needed to survive today’s world economic woes.
By Maxwell Boamah Amofa
(Maxwellboamahamofa@gmail.com)
