It’s the year 1936. The NSDAP party informs the Ford headquarters in the US that the manager in Cologne is Jewish. In order to align to the current political correctness and to be able to earn gigantic money on the European market an immediate change of manager is taking place. An Aryan, Robert Schmidt, becomes the new boss. Historians will later estimate that every third Nazi military truck would be produced in Ford's factories, and his enterprise was the only foreign one that wasn’t nationalized and transferred profits back to America. And because the Allies bombed the factory, Henry Ford asked the US government for compensation after the war. He received 10 million dollars of the time.

That war is a perfect time to make inconceivable fortunes, knew already Stanisław Wokulski – a literary hero of the novel “Lalka” – in the 19th Century. This extremely resourceful entrepreneur went to Bulgaria to become a middleman for both Russian and Turkish army. Up till present day he might have been regarded an excellent example of how to manoeuver effectively between sanctions imposed by world powers.

Therefore there is little surprise that nowadays the big business is doing just the same. Last week when the Russian oil price was inferior to its market value by as many as 28 dollars, it was for the British-Dutch oil company to make a “deal of its lifetime”. Because that’s how the Shell’s purchase was referred to when it made the deal with is Russian counterpart.

The leaders of the largest countries themselves also take great care of their base. By the end of February, the European Union had been preparing the first package of sanctions. The Italian Prime Minister Mario Draghi lobbied to remove luxury goods manufactured in the Apennine Peninsula from the export ban. The Belgians, in turn, were seeking to trade diamonds with Moscow. It has been sarcastically commented that Gucci handbags are more precious than Ukrainian children. The sanctions were also put on such goods.

But let’s have no illusions. Russia is a 140-milion people market. In addition – not a high-quality demanding one and, at the same time, very marginal. In the era of quarterly stock market reports and the need to show shareholders new record profitability ratios, no one will voluntarily give up easy money.

Pretended sanctions

"The purchase of 19.5 % Rosneft shares by the consortium of the Qatari state fund and the Glencore group proves that foreign companies have ceased to fear sanctions imposed on Russia. The triumph of Vladimir Putin”, wrote the British media in 2016. Only two years after the annexation of Crimea and two years after the imposition of “severe” Western sanctions on the Russian oil sector (including Rosnieft, which was then subsidized) and the banking sector (which lacked living money).

The transaction was amounted to 10.5 billion euros and was such a powerful cash injection into the Russian budget that Putin personally ordered the central bank to develop an appropriate economic strategy so as not to cause fluctuations in the currency market. This is probably a model example of how to perfidiously bypass sanctions.

Glencore plc is a Swiss giant that trades crops and raw materials around the world. Its revenues may be equal to those of medium-sized countries. Only its Polish branch sweeps up ca. PLN 6 billion a year from our market! The giant is known for being able to operate on the most difficult and inaccessible markets in the world.

Naturally, the recapitalization of Putin's budget was not self-funded. At that time, Glencore provided only 300 million euros from its own funds. It was the Italians who lent the missing amount The Italian bank Intesa Sanpaolo to be exact.

- A typical way of bypassing sanctions are down payments made for intermediaries purchasing raw materials. The entity receives a transfer to its account, from which it can later, for example, buy a block of shares in a given company in exchange for regular deliveries - explains the economist professor Robert Ciborowski, principal of the University of Białystok.

It was not Siemens’ idea of fun to play with complicated mechanisms of the financial world. In 2017 the German company provided Russia with the most technologically advanced turbines for power plants. Officially they were to be sent to an entity in Taman, in Krasnodar Krai. However they went to Crimea which was an act of infringing the European sanctions. In 2019, the commissioning ceremony of the two Siemens turbines was attended in person by Vladimir Putin.

The German company officially declared outrage and issued a statement that it had been deceived. However, it took legal actions… in Russian courts.

SWIFT only for some

That’s why most experts have no illusions that sanctions impose od Russia will halt military action in Ukraine. They can be of negative impact but only in the long run. All the more so, because they are formulated so as to be safely bypassed and to look good in front of the public opinion.

Disconnection of Russia’s banks form the SWIFT international finance information system was called the “atomic option”. It was meant to cut Russia off the world cash. But this restriction was no applied to Sberbank and Gazprombank so the largest bank in Russia and the third one in terms of the asset. Therefor the only thing those willing to carry on trading with Moscow need to do is to open an account at Gazprombank.

For against its name it’s not an institution which works only for Gazprom. It is a universal bank that serves both corporate and individual consumers. Anyone can be its client. It holds brokerage activities, but also trades gold, silver or deals with currency exchange. In addition, it is the owner of the Gazprom Media holding, i.e. propaganda television TNT. It is also strongly involved in infrastructure investments, including the energy sector. Thus, in practice, Gazprombank being saved it is allowed to continuously operate the key segments of Putin's empire: propaganda, finance and deposits.

It is to be added that Russia has her own equivalent of the SWIFT network – the SPFS system. Moreover there is also a Sino-Russian CIPS payment system.

Credit cards still working

Another blow was to be the withdrawal from Russia of the Visa and Mastercard systems, i.e. a duopoly that issued 210 million payment cards on the Russian market, and globally controls approximately 90% payment market. It seems that such an impact could definitely put the financial world down. But this decision only looks good in the headlines.

Going into details, it turns out that nothing will change for an average Sergei. Although the cards won’t work, it will be so only abroad. In Russia, they shall have been active until their expiry date. And since the deadline is set by the bank, not the card manufacturer, Alfa Bank for instance has already announced that the life span of the issued flexible friends will be extended till ... the end of 2028.

As if it wasn’t enough, Russian banks have already informed the public that instead of Western credit cards they will automatically send their own ones, operating under the domestic MIR payment system. As of today every fourth Russian card functions within it.

Frenchman watching over his business

Although every day we hear about another famous brands withdrawing from Russia, a huge part of them did so because of the massive wave of hatred from the global public opinion.

- Coca-Cola, Danone or PepsiCo don’t do it out of love for Ukrainians, but for purely image-related reasons - notes Paweł Wnukowski, member of the Podlaskie Voivodeship Council involved in helping [Ukrainian – DSK] refugees. - They hadn’t done it until they were de facto forced by powerful criticism of their Western recipients, they had to react somehow. But I have no illusions that they are “taking quick strides”, expecting that when the conflict ceases to be covered by media they will crave for the return of doing business in the East.

Their statements clearly indicate that they only "suspend" sales, and the McDonald's restaurant chain will "temporarily" close its outlets. That they may reopen them soon may be proved by the fact that they do not intend to fire their employees.

French business, and the French leader himself, have no, even temporary qualms about it. According to the daily Le Figaro, Emmanuel Macron was to meet a group of French leaders trading with Russia and encourage them to "not make hasty decisions" of leaving Moscow.

The meeting was supposed to include Frédéric Oudéa (Société Générale), Catherine McGregor (Engie), Guillaume Faury (Airbus), Ross McInness (Safran), Stéphane Israël (Arianespace), Patrice Caine (Thales), Cristel Bories (Eramet), Benoît Potier (Air Liquide) and Yves Claude (Auchan).

The first one has a Rosbank branch in Russia and it is nowhere to be heard that he intends to withdraw from the east. It is alike with the well-known Auchan retail chain. TotalEnergies, unlike British BP, will still remain upon the Volga. It merely announced that he wouldn’t participate in new projects.

Also Stellantis, the automotive concern, chose to stay. "Stopping production in Russia will harm workers, not the authorities," Stellatnis' boss Carlos Tavares said two days ago on CNN.

Without oil & gas sanctions

However, even if all brands in the world boycotted Russia unanimously, it wouldn’t change much. Putin draws strength directly from fuel-based income.

The budget of the Russian Federation is nothing short of bizarre. Its revenues are divided into two subgroups: "Oil and gas revenues" and "Non-oil and gas revenues" (that’s an official document downloaded from the website of the Russian Ministry of Finance!).

In 2014, raw materials accounted for half of the total revenue in Russia's budget. And although the structure has slightly changed over the years, even last year every third rouble came from the sale of oil and gas.

- It is still a primitive economy based on unprocessed raw materials. The entire state functions only thanks to exploiting them. If the price in the world markets is high, then Russia also receives colossal surpluses, and if the oil goes down, then the Russian budget is also doing worse. You do not even see a will to change this economy there – marks the professor Stanisław Mazur, rector of the University of Economics in Krakow.

Therefore, all the sanctions that have been implemented so far may and will make life difficult for ordinary Russians, but they are unlikely to be of key importance for a quick end to the armed conflict. Only a real deprivation of Russia's daily oil and gas receipts can bring it about.

The United States opted for it not for the good of Ukraine but again out of regard for its image. Oil imports from Moscow to the US did not even account for 5% of the American demand. In practice, neither Russia has lost from it, nor has the USA benefited.

It would be different if the European Union had decided to do likewise. Profits from the sale of crude oil to EU countries alone are approximately 10% of the Russian Federation’s central budget.

However, it does not look like it, because neither Germany nor Italy wants to give up cheap Russian materials and are declaring a strong veto. Deutsche Welle has recently announced that "only Poland and the three Baltic states" are in favour of a swift embargo.

The scale of Moscow's subsidy is illustrated by Eurostat data, released a few days ago by the Polish Press Agency: in the first half of 2021 alone, EU countries bought 63.7 million tons of oil from Russia, worth 24.7 billion euros - that's 25% of EU imports of this raw material. In addition there is the import of LNG for 1.9 billion euros and natural gas for 15 billion euros. And also that of coal worth 2.1 billion euros. Thus the six-month raw materials import value amounts to 43.7 billion euros, ergo the annual import – to about 90 billion euros.

This means every day (!) the European Union will be transferring some 250 million euros to Russian accounts. In two days - 500 million, which the exact amount she promised Ukraine to buy weapons for the entire war. It is also worth emphasizing the word "promised". Because when it orders these weapons, will Ukrainian statehood still exist?

– Karol Wasilewski
– Translated by Dominik Szczęsny-Kostanecki