Lesson Of The Day: Sanctions Don't Work Because They Create New Markets

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by Tyler Durden
Wednesday, Sep 20, 2023 - 04:45 PM

Authored by Mike Shedlock via,

A person who touted a buyer’s cartel sanction success, now complains the buyers cartel leaks like a sieve...

Tweet of the Day

Foreign Policy: “Since Russia’s invasion of Ukraine, Greece’s mighty shipping sector has continued to earn good money shipping Russian oil. But Greek shipowners have discovered an apparently even more lucrative source of revenue: selling the ships themselves to mysterious buyers linked to Russia. One publication has declared that a “Great Greek Tanker Sale” is taking place, and no price seems too high for a secondhand tanker. But the formerly Greek ships are entering a Hades-like shadow economy.”

Lesson of the Day: Sanctions Create New Markets

Eurointelligence comments on How Sanctions Created New Markets

Sanctions on Russia were meant to stop trade and coerce Vladimir Putin into a U-turn on Ukraine. Instead, Russia continues to bide its time in Ukraine, and Russian oil in particular continues to flow into world markets. The buyers may have changed and the way markets operate. What was transparent before all of a sudden turned opaque.

The west did also not completely cut themselves off from Russia despite all rhetoric. Western firms and banks are still operating in Russia, even if the numbers have dwindled. Russian gas is still flowing into Europe, albeit at much-reduced volumes, and could even increase thanks to a recent deal between Bulgaria and Turkey. 

Elisabeth Braw, writing for Foreign Policy, has a cracking story about how Greek shipowners made a fortune selling their oil cargo ships second hand. Since the war in Ukraine started, Greece sold 290 ships. They do not sell at a discount. On the contrary, the story gives examples of where the ship price has doubled or tripled compared to the original price the Greek owners paid. In markets like these where money is not a limiting factor, tankers are a desired object that cause a hike in prices. A whole new tanker market has come alive as a result of the war.

The buyers are much more mysterious than the sellers. Companies based in the United Arab Emirates bought most of the tankers, followed by buyers in China, Turkey and India. In 2022, a stunning 864 new maritime companies with an association or link to Russia emerged according to S&P Global Market Intelligence. Sometimes there is not even an email address linked to those companies. The role of the UAE is not surprising, as Dubai has emerged as the new Geneva for Russian oil trading companies. China and India both have stepped up their imports in Russian oil and need tankers for transport.

The role of the UAE is not surprising, as Dubai has emerged as the new Geneva for Russian oil trading companies. China and India both have stepped up their imports in Russian oil and need tankers for transport.

Lesson Number Two

Countries, political leaders, and market makers act in their best interest.

It is in the best interest of Greek shippers to sell ships so they do. It is in the best interest of India and China to buy Russian oil and Greek ships so they do.

It is in the best interest of Dubai middlemen to make a market in ships so they do.

What this boils down to is simple: It is the best interest of middlemen in Greece, Russia, India, China, and Dubai to tell Biden to go to hell, so they do.

Flawed Policy of Trump and Biden

Both Trump and Biden pretend they can set policy for the whole world. The rest of the world is sick of it.

The US’ best interest is not in the best interest of much of the world. Since the US does not give a damn about anyone else’s opinion, why should anyone else give a damn about the US opinion?

Sure, the US can bully small nations, not that it works (because it doesn’t). US foreign policy failed or worse yet backfired in Iran, Iraq, Libya, Cuba, Afghanistan, Venezuela, even Ukraine.

One should not make excuses for Putin, but one also needs to admit the US foreign policy played a huge role in fomenting the mess in Ukraine.

The US is now finding it cannot bully large nations at all. India, China, Russia, and Brazil have had enough.

Enter the BRICS

The world is sick of leaders like Trump and Biden who both believe they can set sanction policy for the globe. But SWIFT, the dollar routing means to enforce sanctions, is approaching a dead end.

The BRICS countries will not challenge the US dollar. Toss that idea in the trash. Instead, the biggest success of the BRICS will be sanction avoidance.

For discussion, please see What Would it Take for a BRIC-Based Currency to Succeed?

One measure of “success” would be use as a reserve currency in a significant percentage of global trade.

A second measure of “success” involves sanction avoidance. The second measure is far more likely to succeed for many reasons. 

We are starting to see a groundswell of sanction avoidance already. And once central bank digital currencies can get around the SWIFT system, the whole idea of the US dictating global foreign policy via sanctions heads straight to the gutter, frankly where it belongs.

If the US minded its own business in the first place, the alleged need for many of these sanctions would never have arisen.

Meanwhile, economists holler for still more sanctions. All that will do is create more innovative ways to avoid them.