Eurasia note #26 - Russia's Foreign Reserves Frozen

Economic shocks threaten region and could overshadow sanctions, as talks continue

Moscow-Kiev talks began at 12:00 Moscow time today. Still ongoing.
U.S. moves to freeze Russian foreign reserves, isolate central bank.
’Neutral’ Switzerland will join EU and U.S. against Russia.
Fear of regional food shortages grow, prompting unrest among neighbours.
500,000 refugees have left Ukraine according to United Nations.
EU offers to supply Ukraine with combat aircraft.
(1,600 words, five minutes’ read)

Fighting continues at the Kharkiv, which Ukrainian forces regained at the weekend.

Tbilisi, Feb 28, 2022 (15:00 GMT)

The U.S. Treasury is attempting to freeze Russia’s foreign exchange reserves, banning any dealing with its central bank. Switzerland, in an unprecedented move, declared it would join the sanctions.

Russian reserves are worth an estimated $630 billion, in currencies such as dollars, euro and yen — just under half was held in North America and Europe as of last summer.

Peace talks began across the Ukrainian border in Belarus. President Volodymyr Zelenskiy welcomed the meeting as having “no preconditions” but he demanded an immediate ceasefire and the withdrawal of Russian troops. He also observed that the Russian representatives seemed low level. Former aid to president Vladimir Putin, an ex-culture minister Vladimir Medinsky.

As a counter offer, EU president Ursula von der Leyen dangled the carrot of EU membership. Ukraine was originally lured from Russia’s orbit with hopes that it could join the EU — but after the Maidan coup of 2014 it found its advances spurned.

Von der Leyen’s offer is likely to be political game play. Ukraine does not meet EU standards for corruption and transparency. Moreover, its long perimeter with Russia and Belarus would make for a porous European border. Nevertheless, the EU president said: “They are one of us and we want them in.”

While the U.S. and EU have tightened sanctions, many countries are still on the fence, including many of Russian’s energy partners in OPEC. Brazil said it would remain neutral. On Monday the United Nations General Assembly will meet, giving an opportunity to gauge broader international sentiment.

Censorship was extended to RT and Sputnik. The Tass and RIA news agencies remain unavailable, along with the Russian president’s official website Kremlin Ru. Denial of service attacks also affected ministries, including digital and communications.

Military operations

The European Union’s foreign representative Josep Borrell broadened the package of aid to Ukraine to include fighter aircraft, drawing on €500 million of EU funds.

During the talks between Russia and Ukraine clashed at the northern entrance to Kyiv. Fighting continued at Kharkiv, which Ukrainian forces retook, and also at during the Russian advance on Zhytomyr, Zaporizhzhia and Chernihiv.

Donetsk People's Republic is close to blockading the southern port city of Mariupol, and troops from Luhansk People's Republic advanced 23 kilometers to take the settlements of Nova Astrakhan and Borovenki, Interfax reported.

Russia insists it is not trying to start conflict but bring it to an end. A Russian defence ministry spokesman recalled that 14,000 people had been killed in Donbas over eight years since the Maidan coup.

Ukraine’s armed forces said as of early Monday, the fifth day of fighting, Russia had lost 29 planes, 29 helicopters, 191 tanks, 816 armored personnel carriers and 74 artillery pieces. The presidential office said 4,500 Russians had been killed.

Russia did not confirm its own losses but said it had made more than 1,100 hits on military infrastructure, 314 Ukrainian tanks and armored vehicles, 57 motorized rocket launchers, and 121 field artillery units.

The human cost is growing. The United Nations says half a million people have left Ukraine in recent days

The US authorities believe that Belarus is preparing to send its troops to Ukraine to support the Russian military operation, The Washington Post reported, citing a source in the US administration.

The big change is Germany. After reversing its historic opposition to sending weapons into crisis zones, it also boosted defence spending one hundred billion euros on its military, bringing its defense spending above 2 per cent of gross domestic product, in line with NATO targets which Germany has lagged for many years. It will set up a special Bundeswehr or army investment fund. [1]

Regional fallout

European and U.S. policymakers are considering how to tighten sanctions on Russia without harming their own economies.

They are buying time, ahead of a Mar 2 meeting of oil producers and have so far avoided moves that would rebound on countries like Germany that depend on Russia for most of their energy.

Many countries stand to suffer if Russian tourists, food exports, fuels, minerals and fertilizers are restricted.