by Georgi Ivanov
The ongoing tensions between Russia and the West over Ukraine have already been expressed in mutual sanctions, the expulsion of diplomats and the suspension of cooperation in nearly all forums – from NATO to the Arctic Council. Yet further sanctions are possible upon Russia if an understanding on Ukraine is not reached soon, but it should be noted Moscow’s reaction can have equally reverberating effects.
We cannot fail to mention that Russia controls 42% of the world’s palladium supply and is one of the two major suppliers of the metal, along with South Africa. Palladium has paramount industrial applications, such as in the automotive industry – if Russia withholds exports as a countermeasure to sanctions, there is no alternative to compensate the 2.6 million ounces that it provides. The fact has critical implications for European industrial manufacturers and should sanctions get more serious, relations with Russia will begin to have negative economic effects on the strategic level.
On a related note, ever hear of Russia’s version of VISA and Mastercard, Rossiya Express? No? Well, you are going to, very soon, because Vladimir Putin announced this past week that Russia is going to create its own payment system. VISA was particularly sensitive about the news, because it has 100 million cards operating in Russia, and the sanctions against two Russian banks, Sberbank and Bank Rossiya, could very well snowball on further restrictions on the company from the Russian side. While such a system would parallel SWIFT, the questions is whether other regional powers would join it and whether VISA and Mastercard would be completely locked out of it – should the Western sanctions push continue, that is very likely. Already, VISA is warning about falling profits and share prices, because of Russia, but what that means in numbers we have yet to see.
Going directly off of the VISA and Mastercard fiasco, Dmitry Medvedev directly called for the re-balancing of the global currency system away from the dollar, as the US currency is both America’s greatest asset for exerting influence internationally, but increasingly, also its Achilles’ heel. The world is already trending toward trade patterns and financial transactions that happen outside of the USD, but Ukraine can become a catalyst for accelerating these trends. The associated risk is the not only greater isolation of the US from international affairs, but also Washington’s diminished influence in helping resolve critical disputes elsewhere in the world, such as that between Israel and Palestine.
Imports and exports are another area where the Russians hold some significant levers. On the one hand, stopping imports from one country or another in one or more areas – as the total embargo on Ukraine indicates – eliminating access to the Russian market can have a detrimental effect on some European economies, and the EU as a whole, as bilateral trade amount to approximately 400bn euros per year. The EU exports about €60 billion of value-added products to Russia a year and imports about €160 billion worth of mineral fuels, lubricants and related materials – not just oil and gas, but materials that are critical for the operation of European industry. What’s more, Russia has the ability to diversify its sourcing, as it can do with food, for example – a $40 billion business per year.
There we have it: finance, currency, market access and rare earth diplomacy – these are only some of the cards in Russia’s diplomatic deck. It doesn’t have the veto power on any of these, but it has enough influence to create major problems for the West. This is why we have to observe an old maxim about Russia when dealing with Moscow: it’s never as strong as it appears, but also never as weak as it appears.