(MENAFN- Asia Times)
The prices of risk hedges against“nuclear” sanctions and their knock-on effects shrank back to pre-war levels as Russia continues to sell oil and gas, and major trading nations continue to use the American dollar as the main instrument of exchanges. Fears of a dislocated energy market and a rush out of dollars following the seizure of half of Russia's $630 billion in foreign exchange reserves haven't materialized, as both the United States and Russia showed a certain amount of restraint.
Oil fell sharply March 15 after Russia's Foreign Minister Sergei Lavrov said that the United States had accepted Russian demands for US assurances that the Iran nuclear deal wouldn't entail sanctions on Russian-Iranian nuclear cooperation. Last week, Russia threatened to hold up the negotiations with Iran unless the US provided such guarantees.
“We've received written guarantees. They are incorporated into the text of the agreement itself on the reinstatement of the Joint Comprehensive Plan of Action (JCPOA) on the Iranian nuclear program, and these texts reliably protect all projects and areas of activities envisioned by the JCPOA, including the immediate engagement of our companies and specialists, particularly as regards cooperation on the flagship project of our interaction, the Bushehr NPP,” the Russian news agency Interfax quoted Lavrov as saying. He referred to a nuclear power plant 1,200 kilometers south of Tehran .
Then-Iranian President Hassan Rouhani and his then-Atomic Energy Organization head Ali Akbar Salehi are shown in this file photo taken in 2015 at Bushehr Nuclear Power Plant. News that Russian-Iranian nuclear cooperation – of which Bushehr is the flagshlp project –can go forward without being subject to Ukraine-related sanctions has rescued the Iran nuclear deal renegotiations in Vienna and, in the process, calmed financial markets. Photo: Wikimedia Commons
The Iran nuclear negotiations are tangential to the strategic confrontation between the US and Russia, but this is the first instance of a US-Russian agreement of any kind since the Russian Army entered Ukraine last month.
China's Foreign Minister Wang Yi meanwhile said March 14,“China is not a party to the crisis, nor does it want the sanctions to affect China. China has the right to safeguard its legitimate rights and interests.”
Investors evidently assign a low probability to Russia-related sanctions on China. Chinese stock prices fell sharply during the last several trading sessions, but China's major banks were among the market's best performers. The Chinese state-owned banks, which deal extensively in the US dollar market and finance a substantial amount of Russian trade, would be an obvious target for American sanctions. News media have reported that Chinese banks stopped financing Russian oil transactions.
China's Cross-Border International Payments System could in theory be used to bypass American and European sanctions against Russian banks, which have been shut out of the SWIFT network for international payments. Chinese banks don't want to risk sanctions, however.
Although China hasn't taken overt measures to help Russia circumvent sanctions, Chinese companies are buying heavily into Russian energy and minerals companies.
It isn't clear that Russia requires Chinese help to sell energy for dollars. Germany refused to place sanctions on Russian oil, which accounts for a third of the country's consumption. Russian oil continues to trade, although at reported steep discounts, and Russian gas is flowing to Western Europe. The price of natural gas in Holland fell from almost EUR 220 per kilowatt-hour to EUR 115 after Germany rejected sanctions.
Investors evidently think that the United States and Russia are positioning for negotiations rather than angling for a killer punch.
The consequences of Washington's seizure of Russian central bank reserves, though, may be felt for some time. Saudi Arabia is now negotiating with China to receive payment for oil in RMB rather than dollars, according to a Dow-Jones report March 15. Russia still has access to its approximately $80 billion of RMB-denominated reserves after the American seizure, and other countries will consider diversifying out of dollars as a security measure.
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