39

As far as I can tell both of these things are currently true:

  1. Russia has been cut off from a large chunk of the Western financial system
  2. The EU is still buying Russian gas and oil

But how does this work in practice? When Russia sells their gas to Europe, what do they get in return? The usual answer is "dollars/euros" which Russia then trades for various goods made in Europe. But with the financial sanctions being so strong, it seems like buying European goods is now much more difficult? If so, what's the incentive for Russia to not shut off their gas/oil pipelines tomorrow?

2
  • 1
    Is there any doubt that dollars are still valuable in North Korea? If for nothing else than on the black market... Ironically, the Covid-related border closure seems to have made the USD less valuable in NK. aljazeera.com/economy/2021/10/14/… So it takes a super-tight embargo/autarky for the dollar to lose value. And the kind of border closure that NK had was basically: even diplomats had to push a cart across the border.
    – Fizz
    Mar 7 at 20:16
  • The question is also what they can do with the money they get from the sales? Maybe it's even more difficult to spend the money than to earn it for Russia currently.
    – Trilarion
    Mar 8 at 13:23

3 Answers 3

39

Money, of course.

As of March 7th, Russia is not completely cut off from SWIFT. Selective Russian banks were thrown out, but not all of them. It seems that the US is negotiating with other oil and gas producers to have them increase their output, but OPEC is reluctant.

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  • 4
    Yes and maybe. They can't spend as freely as they used to, but they're getting paid. There are some countries in eastern Europe which get close to 100% of their gas from Russia and it is still freezing.
    – o.m.
    Mar 7 at 19:25
  • 1
    @JonathanReez Some companies have stopped doing business in Russia while others haven't.
    – Joe W
    Mar 7 at 19:31
  • 6
    @JonathanReez, right now there are companies executing government-mandated sanctions, companies winding down in anticipation of government-mandated sanctions, companies bowing to public pressure, companies finding the business climate in Russia unhealty, and companies acting out of moral outrage. Lawyers will spend decades sorting it out. And any answer given today will be moot tomorrow. To your specific example, it would depend on which bank the Russians have been using, which shops are still selling to a delivery adress in Russia, and which shipping firms are still shipping. (continued)
    – o.m.
    Mar 7 at 21:01
  • 4
    (continued) AFAIK, one could still hand-carry a modest sum of Euro notes to Finland, and hand-carry furniture back. However, there are also Russian capital controls to consider. Russia has been banning the export of hard currency.
    – o.m.
    Mar 7 at 21:06
  • 2
    @Trilarion You seem to assume that Ikea produces a lot of furniture for the EU market in Russia. I don't think that's the case. I don't have any real statistics, but I do have a house packed full with Ikea furniture and I tend to read the markings on all the parts as I assemble them. I don't remember seeing "Made in Russia" on any, it's mostly Poland and Romania plus some bits from Slovakia and the like.
    – TooTea
    Mar 8 at 14:31
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Russia is still getting euros and dollars for its oil and gas

As of March 8, Russia is still selling gas to European countries and those countries are still able to pay for it.

The sanctions do not include the main banks used to pay for Russian gas and oil.
According to Reuters:

The European Union said on Wednesday it was excluding seven Russian banks from the SWIFT messaging system, but stopped short of including those handling energy payments, in the latest sanctions imposed on Russia over its invasion of Ukraine.

[...]

Sberbank [...], Russia's largest lender, and Gazprombank were not included because they are the main channels for payments for Russian oil and gas, which EU countries are still buying despite the conflict in Ukraine.

As of March 8, Russian gas is still being sold to Europe.
According to Reuters:

Russian gas delivered through the Yamal-Europe pipeline via Poland was flowing westward into Germany on Tuesday morning, and flows into Slovakia via Ukraine remained at recent high levels, pipeline operator data showed.

[...]

Flows on the pipeline under the Baltic Sea remained at steady levels on Tuesday [March 8] morning, according to Refinitiv Eikon data.

Russia has threatened shutting down delivery on their end, but hasn't done so yet.
According to the same source:

Russian warned late on Monday [March 7] that it could cut gas supplies via the Nord Stream 1 pipeline to Germany in response to Berlin's decision last month to halt the opening of the controversial new Nord Stream 2 pipeline, but said it has not made such a decision yet.

9

As others have noted European countries have been careful to keep the oil and gas spigots open. The US is considerably firmer, seeing as it conveniently doesn't need that gas.

If, like me, you are wondering what they are getting, further down the line, for those dollars and euros, with all the sanctions going on - can't buy iphones, netflix, Boeing spare parts, Mercedeses, etc... consider that it allows Russia to keep on purchasing goods from China and private Chinese companies.

Which, while it hasn't joined the sanctions, may balk at extending credit or getting paid in rubles.

At least two of China’s largest state-owned banks are restricting financing for purchases of Russian commodities, underscoring the limits of Beijing’s pledge to maintain economic ties with one of its most important strategic partners in the face of sanctions by the U.S. and its allies.

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