Policy Papers
2022-01-25_edited.jpg

The launch of Central Bank Digital Currencies (CBDC) not only revolutionizes the international financial system, it also represents an opportunity to minimize the exposure to the US dollar transactions and avoid US oversight. China enjoys a first-mover advantage, as it became the first major economy to launch a CBDC. Following in Beijing’s footsteps, Russia is at the forefront of advancing its digital currency project. As US-sanctioned countries, Russia’s and China’s motivation extends beyond transaction costs reduction and financial inclusion: the governments seek to reduce their dependence on the US dollar and mitigate sanctions risks. In the short term, the US dollar’s international status remains unrivalled. No currency is well-positioned to displace the greenback as a reserve currency. In the long term, CBDCs could eliminate the need for third-party intermediaries and allow cross-border transactions that take place outside of the US-led financial system. This would hamper the US’s ability to use sanctions as a geoeconomic tool and oversee their extraterritorial enforcement. Read more...

2021-07-29_edited.jpg

Washington and Berlin have settled their differences over the gas pipeline through the Baltic Sea. For the time being, this has halted the spiralling energy security dilemma. While Washington is sending a clear signal that constructive relations with Berlin are important, the German government is now called upon to implement a variety of measures. Still, the project remains a political issue. Kyiv and Warsaw have already signalled their opposition. A grand bargain that is not only bilaterally agreed upon but also involves Ukraine and commits Russia has not yet been achieved. Read more...

aec7b5_c25d12aef1e0499ea9cddfebe461f5c5~mv2.png

With the Nord Stream 2 gas pipeline from Russia on the verge of completion, Germany has a choice to make. It could seek compromise to satisfy critics of the pipeline – including those in Brussels, Kiev, Warsaw and Washington – that would, among other things, protect Ukraine’s status as a gas-transit country. The government that emerges from German elections in September 2021 may push in this direction. Or it could eschew a deal, which would stoke tensions in the transatlantic relationship and over energy security in the European Union. Read more...

2021-07-20 (7)_edited.jpg

The contentious Nord Stream 2 pipeline has revived the fundamental differences of opinion that divided the allies during the Cold War and created new inter-European tensions. A closer look at the crises in the Western alliance occasioned by the Druzhba oil pipeline in the 1960s and the Yamal–Urengoi gas pipeline in the 1980s reveals the continuity of disagreements between Europe and the US, as well as showing similar patterns of weaponizing Western technology and sanctions. If history is any guide, lessons from the past might provide an indication of how to resolve the ongoing crisis over Nord Stream 2. Read more...

2021-07-20 (5)_edited_edited.jpg

In response to Western sanctions, Russia launched a policy of import substitution with the aim of safeguarding its economic and technological sovereignty. Over the last five years, the program of import substitution has failed to achieve full economic sovereignty. Due to the lack of domestic capabilities, poor inter-sectoral cooperation, and rent-seeking, progress on substitution was protracted and weighed down by uncompetitive prices and poor-quality products.  As a result, Russia adapted its approach. Moscow resorted to import diversification to non-Western markets and localization of foreign goods and technology—two strategies that have gradually replaced Russian-made import substitution. Russia’s pivot to Asia has proven to be crucial in buying time and alleviating external pressure. But the turn to the East has its own pitfalls and does not present a panacea to Western sanctions. Read more...

2021-07-20 (11)_edited.jpg
In 2016, Japanese Prime Minister Shinzo Abe launched an eight-point economic plan to reform Japan’s relations with Russia. Abe’s aim was to foster economic interdependence between the two countries rather than allow a stalemate to continue on the longstanding dispute over the Kuril Islands. Dr. Shagina provides an analysis of the hitherto outcomes of Abe’s economic endeavors. Read more...
2021-07-20 (9)_edited.jpg
Showing solidarity with G7 countries, Japan imposed sanctions on Russia, albeit reluctantly. The Ukraine crisis occurred amid Japan’s efforts to reinvigorate its relations with Russia in the hope of solving the territorial dispute. While Japan felt obliged to support the international community and bandwagoned on Western sanctions, the geopolitical dynamics in Asia-Pacific forced it to take a conciliatory approach to Russia. Addressing its strategic interests, domestically the Abe administration was challenged to keep the balance between the West and Russia. Despite its wrongdoings in Ukraine, Russia was perceived as the resolve to Japan’s strategic concerns. Tokyo’s balancing act resulted in symbolic sanctions to avoid any irritations for Moscow. The evaluation of Russia’s role in Japan’s strategic concerns in the region, however, questions the country’s calculations and the expedience for symbolic sanctions. Read more...
2021-07-21 (2)_edited.jpg

Due to Western sanctions, Russian energy companies were banned from using Western technology for deepwater, Arctic offshore and
shale exploration. Lacking homegrown technologies, the Russian energy sector pivoted to Asia and started using equipment and services from China, South Korea and Japan. At the same time, the government launched a localisation programme that aimed to replace Western technology and develop domestic manufacturing. After three years, the success of the import substitution programme is mixed. This special report looks at Russian energy companies’ response to Western sanctions and their pivot to the Asia-Pacific and assesses the progress of import substitution over
the last three years. Read more...

shagina-1-1024x682.jpg

With Washington’s striving for multilateral coordination and Brussels’ quest for strategic autonomy, there is an opportunity to revamp a trans-Atlantic sanctions policy toward Russia. Instead of routine sanctions, the United States and the European Union should broaden the scope of their economic statecraft and focus on building resilience to external influences at home.  By reducing its own domestic vulnerabilities, the West can become more resilient to Russia’s attempts to exploit weak spots in Western systems, thus reducing the need for a sanctions offensive. Stricter anti-money laundering regulations, robust foreign investment screening, and tighter export controls could minimize the West’s domestic vulnerabilities and strengthen its room for maneuver to exert influence externally. This might not solve the United States and Europe’s problems deterring Russia in the short term, but taking the long-term perspective may enable clearer thinking about a more effective use of economic statecraft. Read more...

image.png

Seven years after threats were first made to cut Russia off from SWIFT, how well is Russia prepared to cope with disconnection from Western payment systems?

 

The April 29 resolution passed by the European Parliament on excluding Russia from the SWIFT international payment system should its troops invade Ukraine may be legally nonbinding, but it did not go unnoticed by the Kremlin. Presidential spokesman Dmitry Peskov said a potential cutoff was a serious threat, and that its implementation could not be ruled out. Read more...

aec7b5_1332a0a9697d4e4297ebf74508afd07d~mv2.jpg

The debate around the Nord Stream 2 gas pipeline is overly politicized. A change in perspective is needed. In the long term, Ukraine as the country most affected could strengthen its position by developing into a green energy producer within the European energy market. Read more...

2021-07-20 (4).png

As the Arctic ice recedes, interest in resource extraction and promising trade routes increases. Two actors in particular will have a strong impact on the region: China and Russia. Both are bound by an intricate dynamic of cooperation and competition, particularly in the energy sphere. As their interests do not always overlap, tensions and asymmetries between them may increase. Read more...

2021-07-20 (6)_edited.jpg
The crisis in Ukraine stunted the institutional development of the Eurasian Economic Union (EAEU). Having lost Ukraine as a potential member, the EAEU got caught in the tensions between Russia and the West. Moscow’s retaliatory measures against Western sanctions have backfired against the Union and have undermined its fundamental objective—the creation of free trade. Russia’s uncoordinated sanctions caused collateral damage and unleashed unintended consequences on its fellow members. Going beyond the economic realm, the unilateral measures have hampered the Union’s further integration. Given the current stalemate on a common sanctions policy, stricter customs control remains the only viable option in the long-term. Read more...
2021-07-20 (8)_edited.jpg
This report will examine Russian-Japanese and Russian-South Korean energy cooperation. Neither Japan nor the Republic of Korea imposed energy sanctions on the Russian Federation, and both U.S. allies continue to expand their energy deals despite Western sanctions. In the framework of Prime Minister Shinzō Abe’s eight-point economic cooperation plan and President Moon Jae-in’s Nine-Bridges initiative, Japanese and South Korean companies actively participate in Russia’s ambitious energy projects, such as Yamal LNG, Arctic LNG-2, and projects on Sakhalin Island. As U.S. sanctions expand further, intensifying energy relations will put Japanese and South Korean companies in the line of fire. Looking at existing and planned joint energy projects, this report will analyze the countries’ rationale for deepening cooperation. It will then examine how Japanese and South Korean energy companies adapt to Western sanctions—in particular to U.S. secondary sanctions—and highlight the strategies that companies use to navigate sanctions’ loopholes. Finally, it will assess potential challenges for energy cooperation stemming from additional U.S. sanctions, Russia’s import substitution policy, and China’s growing energy demand. Read more...
2021-07-20 (10)_edited.jpg
Showing solidarity with G7 countries, Japan imposed sanctions on Russia, albeit reluctantly. The Ukraine crisis (Russia’s annexation of Crimea and the destabilization of Eastern Ukraine) occurred amidst Japan’s efforts to reinvigorate Japan-Russia relations in hopes of resolving the territorial dispute. As a G7 member, Japan felt obliged to support the international community and to impose sanctions. However, the geopolitical dynamics in Asia-Pacific forced it to take a conciliatory approach towards Russia. Japan’s symbolic sanctions allowed the country to balance between the West and Russia in the short run, but they may be counterproductive for Japan’s territorial negotiations with Russia and the effectiveness of Western sanctions in the long run. Read more...