Highlights of the week: Sanctions that don't quite work, putin destroying his own economy, and sluggish economic growth in the Eurozone

Restrictions bring easy money to those who don't comply with them. This is how The Economist describes the consequences of diesel sanctions on russia, drawing parallels with oil sanctions. The outlet suggests analysing the overall indicators of russia's trade in diesel fuel to ensure that the sanctions have not had a significant impact. After all, in March, russian diesel fuel exports reached a record 1.3 million barrels per day. The current decrease is attributed not to the influence of sanctions but to the result of seasonal maintenance at oil refineries.

Diesel and oil sanctions. Hard to see without a microscope

Who buys russian diesel? The countries that can afford such a feat can be divided into two camps. The first camp includes those who buy more diesel fuel from russia at a discount to replace supplies from other countries. This includes South American countries, led by Brazil. Despite not buying anything from russia in January, Brazil received 152,000 barrels per day in June, which is equivalent to 60% of its total diesel fuel imports. North African countries such as Algeria, Egypt, and Morocco have also sensed the scent of a lucrative deal. In recent months, russia has even exported refined oil to North Korea, marking the first such shipment since 2020. These new customers themselves have minimal exports.

The second category includes countries that sell their own oil or re-export russian oil because they have their own oil refineries. The main country among them is Turkey. Currently, Turkey is buying twice as much diesel fuel from russia as it did in January, but its own exports are still growing faster. It is unlikely that Turkey re-export a larger portion of the production under a new label. Instead, it probably uses its proximity to Europe to 'triangulate' russian flows, using cheap imports to meet its internal needs and selling its more expensive production to the bloc.

But the question arises: where does russia get the transportation for such volumes? Most Western firms refrain from providing these services to russian clients due to significant risks. However, not all do. The Economist asserts that Gunvor and Vitol, two giant Geneva-based traders, still rank among the top ten buyers of russian oil products in the first four months of this year. The rest consist of trading divisions of russian energy companies, as well as a mix of lesser-known merchants often established in Hong Kong, Singapore, or the United States since the start of the war.

In turn, The New York Times notes that both the US and the EU continue to buy russian oil, which is processed into petrol, fuel oil, and other products in other countries. Countries such as Turkey, the United Arab Emirates, Singapore, China, and especially India, are buying russian oil, which now has to be sold at a discounted price due to restrictions imposed by the United States and Europe. These countries, referred to as “laundries” by environmental and human rights organisations, process the oil and send it to other markets. And this is done legally.

To block these flows, Global Witness proposes to ban all imports from oil refineries that purchase russian crude oil. Last week, the group sent its members to Washington to lobby this issue in Congress, particularly in committees dealing with energy issues and support for Ukraine.

However, The New York Times finds it unclear what such a ban would mean for US relations with India, which the Biden administration sees as a key strategic partner. The Jamnagar refinery is owned by Reliance Industries, controlled by Indian businessman Mukesh Ambani. Mr. Ambani is a close partner of Indian Prime Minister Narendra Modi and was a guest at the state dinner hosted by the White House for Mr. Modi the week before last.

---

The economy of russia is self-destructing. But too slowly

An American outlet, Time, wrote about the weak Western sanctions and the russian economy last week. In the article titled "How putin Cannibalizes russian Economy to Survive Personally" Time notes that putin's financial lifeline for waging war against Ukraine is his ruthless destruction of russian economic productivity.

Many Western commentators claim that putin receives billions from trade to finance the invasion, thanks to high commodity prices, weak Western sanctions, and evasion of them, as stated by the outlet. However, in their opinion, the main source of funds is “draconian” taxes on everything that moves.

Similarly, initially, putin resorted to imposing heavy taxes on both companies and individuals who were leaving russia after the invasion, and then abandoned all claims and simply started indiscriminately confiscating money and property.

Furthermore, putin has rejected any pretence of responsible fiscal policy, demonstrating a record budget deficit, printing record amounts of money out of thin air, forcing russian banks and individuals to buy virtually worthless russian debt obligations, and withdrawing hundreds of billions of dollars from russian sovereign funds, thereby jeopardising russia's future, as stated by the American outlet. It is not surprising, in its view, that disillusioned elites like oligarch Oleg Deripaska limit themselves to complaints in the press, while labour strikes resembling those of 1917 become increasingly frequent throughout russia against the backdrop of an already catastrophic labour shortage.

Time seriously believes that the historical inevitability of revolutions amid an exhausting economic crisis, partially caused by excessive military spending, can come into play now. The authors of the article seem to think that defeat in the war goes hand in hand with economic decline and a regime change in russia.

---

Economies that are growing. However, too slowly as well

On this front, it seems that pleasant news is exhausted. In its analysis of the global economy, the influential Wall Street Journal observes that S&P Global's survey indicates a sharper-than-expected slowdown in the growth rates in the Eurozone, Japan, and Australia. Specifically, the activity in the previously strong services sector was growing at a slower pace than in previous months, while manufacturing activity remained weak. Business activity has also cooled off in the United States, but not as sharply as in other parts of the world. According to S&P Global surveys, American service sector companies reported a moderate growth slowdown in June, whereas manufacturing activity contracted again due to low order levels.

However, in another WSJ article, it is noted that the Chinese economy is showing new signs of weakness as well. In June, China's manufacturing sector contracted for the third consecutive month, while the non-manufacturing sector weakened. China is facing a range of challenges that, economists warn, threaten its long-term growth potential in the absence of radical reforms.

Although, Business Insider believes that China is hiding $3 trillion in “shadow reserves”, adding unknown risks to the global economy. A key indicator of China's reserves is the sudden pause in their activity, as reported in the reports. From 2002 to 2012, China's foreign reserves steadily grew as the central bank purchased dollar-denominated assets to prevent excessive strengthening of the Chinese yuan, allowing exports to remain cheap. However, over the past 10 years, China's reserves have slowed down amid a growing trade surplus, which is currently at a historical high, according to the outlet.

We cannot escape the thought that the economies of russia and its satellites will not soon feel the exhaustion from their futile and senseless war against Ukraine, which seems to have tired our allies. Therefore, it is worth continuing the pressure on them through sanctions that have not been effective but have intensified in recent weeks.

.