Saturday 28 May 2022

Russia sanctions threaten Vladimir Putin’s allies in Latin America

The effects of the sanctions on Russia's banking system will likely affect Venezuela, Nicaragua and Cuba. Energy, military and agricultural sectors could suffer the most.

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Q REPORTS (DW) In response to the brutal invasion of Ukraine, a round of sanctions imposed by Western countries now weighs on Russia, President Vladimir Putin and several oligarchs. But the measures targeting Russia’s economy and banking system are expected to have repercussions beyond Europe and punish Moscow’s allies in Latin America.

Nicolas Maduro and Vladimir Putin seen here in December 2018

The White House security chief for the Western Hemisphere, Juan Gonzalez, said last week that Cuba, Venezuela and Nicaragua will feel the impact of the sanctions due to their economic relations with Russia.

Especially after the European Union’s recent decision to exclude seven Russian financial institutions from the SWIFT international payments network.

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“In Latin America, the banking sanctions will impact more directly some enterprises,” according to Ryan Berg, senior fellow from the Center for Strategic and International Studies in Washington

One example Berg pointed out is Venezuela’s state-run oil corporation PDVSA. “They have accounts in Russia and might find it difficult to move money and perform financial transactions now,” Berg added.

After receiving a raft of sanctions from the US during Donald Trump’s presidency, Venezuela turned to Russia to avoid the measures and continue to sell its oil through intermediaries.

Venezuela’s oil industry will likely be hurt the most as Russian investment may dry up
Financing running dry

In 2019, when the country was in the midst of an acute political crisis, the Nicolas Maduro administration even relocated PDVSA’s offices in Lisbon to Moscow in a move to further secure its assets and preserve its operations in Europe.

But the sanctions derived from Russia’s invasion could force Venezuela to find a new path to continue its oil sales.

“Venezuela has opted for the Russian financial system and adopted a complex dynamic, and the sanctions can impact its financial engineering and its ability to make transactions,” said Venezuelan analyst Asdrubal Oliveros, who leads an economic firm based in Caracas.

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“These measures can hinder Venezuela’s cash provision even though at the firm we have forecasted higher revenues in the local oil industry this year. Sanctions can keep escalating and the Venezuelan government will have to find new structures to neutralize their effect.”

The total value of Venezuelan assets overseas is unknown as the government has failed to publish data. However, the drastic crash of the Russian ruble over the past week also affects the sums of money the Latin American country has stored in Russian bank accounts.

“The revenues from the oil sales are converted to dollars or euros and later transferred to Venezuela. This dynamic, and the ban of the Russian financial system from the SWIFT network, could prevent Venezuela from accessing cash from the oil sales,” Oliveros added.
Defense and agriculture

Even though most of its robust trading partners are in Europe and Asia, Russia has found fertile ground in Latin America to strengthen its military relationships through the provision of arms and assistance.

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In December, Nicaragua and Russia signed an agreement to attract investors and promote the application of nuclear technologies to the energy, agricultural and medical fields.

Similarly, last month Maduro pledged his government’s support to Russia against NATO and tightened the relationship with Russia by signing new agreements on military and energy cooperation between the two countries.

Russian-made Sukhoi fighter jets are a common sight in the armed forces of Latin American nations

However, Russia’s military sales are not exempt from the sanctions.

“It is possible that companies in Russia that produce military equipment won’t be able to sell any to Venezuela, Nicaragua or Cuba,” Berg said.

He highlighted that these transactions don’t only affect big purchases but also spare parts and equipment maintenance.

Latin America’s agricultural sector will also suffer the effects of these measures, Berg added. With Russia being a major global producer of fertilizers, the war in Ukraine and the economic restrictions will indirectly affect agricultural powers in Latin America, like Brazil and Argentina.

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Reports by QCR staff

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