Europe gains from fossil fuel phase out, but CBDC could weaken future sanctions

Putin’s asset is Europe’s liability

 
What the war in Ukraine should mean for energy and food security

Russia supplies around 40% of Europe’s gas and a third of its oil. Nobody knows whether these will be disrupted by the Ukraine conflict, but the direction of travel is clear: Europe, including the UK, will substantially reduce its reliance on Russian fossil fuels.

The invasion of Ukraine was not caused by fossil fuels. But Vladimir Putin’s Russia is a petro-state: fossil fuels provide 60% of Russian exports and 40% of Russia’s federal budget revenue. It is principally fossil fuels that have enabled Putin to build up $470bn in foreign reserves, designed to insulate Russia from the economic sanctions put in place over the weekend. They are also the reason the UK’s sanctions are not, in fact, that severe: fossil fuel purchases – the majority of Russian exports – are exempt.

Why hasn’t the UK boycotted Russian energy? The harsh reality is that too many European states feel too dependent on Russian energy to risk an immediate boycott. To be clear, this is a political decision, not an energy security calculation.

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-CBDC networks could defang sanction threats

Weaponisation of payments system only possible once

Removing Russian participants from Swift and the dollar payments network will deal a powerful blow to Russia’s economy, but the power of the measure may soon start to wane as cross-border CBDC networks become an urgent priority.

Russia’s invasion of Ukraine has triggered a wave of sanctions on individuals and financial institutions from the West. The traditional hallmarks are there — restrictions on purchases of Russian debt, trading restrictions — as well as some new ones, like asset freezes on central bank foreign exchange reserves.

The decision to lock (most) Russian institutions out of Swift was a contentious one but something of a red herring. In and of itself, Swift is not a payments network. It simply carries the messages used to describe payments. That means that Russia can use other messaging services to send payments, although these are slow or not well-used and many of their counterparties will be unwilling to deal with them because of other sanctions.

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Πηγή: omfif.org