The Moscow Exchange has announced the suspension of all trading in US dollars and euros as of June 13, 2024. This decision follows the imposition of fresh US sanctions targeting the Moscow Exchange and the National Clearing Center, significantly impacting Russia’s access to global financial markets in response to its continued aggression in Ukraine.

The sanctions, announced by the US Department of the Treasury, aim to deepen Russia’s financial isolation. “Russia’s war economy is deeply isolated from the international financial system, leaving the Kremlin’s military desperate for access to the outside world,” stated US Treasury Secretary Janet Yellen in a press release. “Today’s actions strike at their remaining avenues for international materials and equipment, including their reliance on critical supplies from third countries.”

The suspension of dollar and euro trades is a significant blow to the Moscow Exchange, Russia’s largest public trading platform for equity, fixed income, derivative, foreign exchange, and money market products. As a result, banks and investors must now resort to over-the-counter trading, reducing market liquidity and oversight.

Ruble in freefall

The news has caused significant turmoil within Russia’s financial system. Reports indicate that websites for major banks such as Rosbank and Gazprombank were down, and the Moscow Exchange faced login issues.

Fintwit pundit Mario Nawfal posted on X, “🚨🇷🇺BREAKING: RUSSIAN RUBLE ON THE BRINK OF COLLAPSE?! Rosbank is offering to buy US dollars for 52.8 rubles and sell them for 132.4 rubles, indicating a significant supply issue.”

Financial advisors have begun recommending businesses in Russia to delay any ruble-denominated transactions, fearing an impending currency collapse and potential bank runs.

With the trading suspension, China’s yuan has become increasingly vital in Russian markets. The yuan accounted for 53.6% of trades in May, reflecting a significant shift as Russia looks towards China amidst Western financial ostracism. This change underscores the deepening financial and economic ties between Moscow and Beijing.

The sanctions

The latest round of sanctions imposed by the US is multifaceted, targeting key sectors of the Russian economy and further isolating its financial infrastructure.

• Financial Infrastructure: The sanctions specifically target the Moscow Exchange and the National Clearing Center, aiming to cripple Russia’s ability to engage in international finance. This includes freezing any US-based assets and prohibiting US persons from engaging in transactions with these entities.
• Secondary Sanctions: A significant aspect of the new sanctions involves the imposition of secondary sanctions on foreign financial institutions that conduct or facilitate significant transactions with Russian entities involved in the military-industrial complex. This expands the scope of entities at risk of being sanctioned and includes major Russian banks such as VTB Bank and Sberbank.
• Technology and IT Services: The sanctions restrict Russia’s access to critical US software and IT services, essential for the development of its military capabilities. This includes prohibitions on the supply of IT consultancy, design services, and cloud-based services for enterprise management and design software. The restrictions are set to take effect on September 12, 2024, with exceptions for civil telecommunications and humanitarian transactions.
• Military and Industrial Goods: The sanctions extend to entities involved in the production of UAVs, chemical and biological weapons, and other military goods. More than a dozen transnational networks involved in laundering gold, procuring sensitive items, and supporting Russia’s war economy have been targeted.
• Liquefied Natural Gas (LNG): The US has also taken steps to limit Russia’s future revenue from LNG projects. Sanctions target entities involved in the construction of gas production and liquefaction facilities, as well as the manufacturing of specialized equipment for LNG transportation. Specific projects like Obsky LNG, Arctic LNG 1, and Arctic LNG 3 are included.

The sanctions extend beyond financial measures. The US Department of the Treasury, in coordination with the Department of State, has targeted more than 300 individuals and entities globally, including sectors critical to Russia’s war effort such as software, IT services, and hardware used in the production of UAVs and chemical weapons.

“Every day, Russia continues to mortgage its future to sustain its unjust war of choice against Ukraine,” Yellen emphasized.

The expanded definition of Russia’s military-industrial base to include all persons blocked under Executive Order 14024 means that foreign financial institutions facilitating significant transactions with Russian entities risk being sanctioned. The Office of Foreign Assets Control (OFAC) has updated its advisory for practical guidance on identifying and managing sanctions risks.

The timing of these sanctions is crucial as G7 leaders prepare to meet in Italy from June 14-16, 2024. The summit, which will take place in Rome, is expected to focus heavily on coordinated actions to intensify pressure on Russia, as well as addressing other global economic challenges.

Information for this briefing was found via the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.