The Russians are kind of like the Hydra from Greek mythology – that’s the creature that grows two heads every time you cut one off, for those who have been out of 5th grade for a bit – but the most recent round of sanctions might be the cauterizing torch needed to stop the Russians from bouncing back this time.
Sanctions are not a new strategy to fight the Russians; the US and the Europeans have used them to cut off access to dollar/euro liquidity since the dawn of the Ukraine War. While this shut the Russians down for a bit, the Chinese stepped in and provided yuan liquidity to help circumvent those Western sanctions.
On October 12, the exemption allowing Chinese yuan to help the Russians will expire. Any Chinese institutions that continue working with the Russians will risk losing access to dollar liquidity, which would be devastating for the Chinese economy. The removal of the yuan will limit Russian trade and global economic activity and I would expect most Russian industries to take a big hit, except for those producing military parts and equipment.
We’re entering unprecedented territory here. No country of Russia’s scale has been cut off from global liquidity, so the outcome is up in the air. However, the next round of sanctions could very well decimate the Russian economy.
