Indian exporters in Russia need not worry, keep doing business for now

First, India has a trade deficit of $4.34 billion as of December compared to Russia. This means that Indian entities owe Russia dollars. In the event that Russia is not able to make international payments as a result of Western sanctions, it can always ask Russian entities to make payments on behalf of Russia to those who are owed payments by Russian entities, While they pay internally. Settlements between the involved counterparties. But things are unlikely to reach this close. Payment is likely to be made through regular channels.

This is because the West has not approved all Russian banks. There are a number of banks that are still free to use and settle payments on the New York-based Dollar Network.

Finally, Russia runs a strong current account surplus accounting for 7.4% of GDP, according to the Economist Intelligence Unit. According to the Russian central bank, its international reserves stood at $630.2 billion as of 31 January 2022, of which foreign exchange reserves constituted $498 billion (the rest includes gold, special drawing rights and reserve positions in the IMF). He has no shortage of dollars to pay his dues.

The biggest factor in favor of exporters keeping their nerves on Ukraine is Europe’s dependence on Russia for its energy, especially gas. As much as 40% of the natural gas used by Europe – and it is a mainstay of conventional gas use, not only for heating, but also for electricity generation, given that Europeans are increasingly aware of climate change and Willing to fight the gas. Of the carbon dioxide it produces when burning coal to generate electricity, only half of that – comes from Russia via several pipelines. Europe is unwilling to impose any sanctions that could limit their ability to buy Russian gas.

It would refuse to kick all Russian banks to the world’s dollar network. In the case of sanctions against Iran, not only were Iranian banks sanctioned, but the US also announced secondary sanctions against any entities that transacted with sanctioned Iranian entities. This meant that no western bank could make payments to approved Iranian entities.

If the same level of seriousness is adopted towards Russian banks, European banks will not be able to pay for Russian gas, and this will create a much bigger problem. Europe could be able to capture most of the gas traded in the world’s spot markets. But this will increase gas prices and also increase oil prices. French President Emmanuel Macron has vivid memories of the 2018 Gillettes Jaunes (Yellow Vest) protests over his increased taxes on petrol and diesel. Presidential elections in France are to be held in April this year. Will Macron want to lift sanctions that will raise petrofuel prices and send Gillette Jones back on the warpath?

There is reason to believe that Europeans value their own economic interests more than Ukraine’s desire to join the North Atlantic Treaty Organization. The Dutch are lobbying to keep diamonds out of any restrictions, and Italians, luxury goods, reports the New York Times.

Therefore, there will be sanctions against Russia, against the powerful Russians, a ban on the Russian government from raising debt on European capital markets, and against some Russian banks. But the few Russian banks that can receive dollar payments will be spared, and left free to operate, so that Russian gas exports can continue. Those banks can also settle dues of Indian exporters.

Right now, Russia should stop worrying about Indian exporters and get back to exports. Kungfu Panda, in particular, Master Shifu’s discourse on inner peace, can provide extra comfort for a few hours spent re-watching the movie.