What’s The Workaround for Failing U.S. Economic Sanctions? It’s Gold.

The U.S. and the EU have imposed numerous rounds of economic sanctions on Russia since the start of the Special Military Operation in Ukraine in February 2022.

Russia was kicked out of the SWIFT international bank transfer message system. Exports of oil and natural gas were limited and subject to price caps. Insurance for shiploads of Russian oil were prohibited in London markets. Russian exports of strategic metals and agricultural produce were sharply curtailed. Western exports to Russia of high-tech goods and semiconductors were prohibited. Hundreds of U.S. companies were forced to close their doors in Russia. MasterCard and VISA no longer accepted charges from Russian cardholders.

The list goes on. Here’s the bottom line: they have all failed.

The Russian economy is booming and materially outperforming growth in the U.S. and EU. The Russian ruble is steady against the U.S. dollar at around 90:1. Russian exports of oil and natural gas are at all-time highs with shipments formerly sold to Europe now being sold to China and India. The Russian economy is on a full war footing and is outproducing the collective West by far in weapons, ammunition and high-tech systems, including drones and hypersonic missiles needed to fight and win the war.

Now, the West is growing desperate. The U.S. is resorting to secondary sanctions. These are sanctions not imposed on Russia directly but imposed on other countries such as China that do business with Russia in alleged violation of U.S. rules.

The problem for the U.S. is that these secondary sanctions are just as easy to work around as the primary sanctions. It just takes some practical business experience and familiarity with shipping, insurance, finance and other tools of international trade.

For example, Russia can easily export oil at prices higher than Janet Yellen’s “caps” by repainting old oil tankers, renaming them, disabling transponders and sending them out to sea. Insurance is easily covered with self-insurance, captive insurance companies or coverage offered by the Chinese.

It turns out that one of the easiest ways around primary and secondary sanctions is to use our old friend gold. Once an invoice is due, you simply ship physical gold (which is non-traceable) in quantities that pay the invoice at market prices. Accounts payable and accounts receivable can be netted so that the amount of gold needed is based on net trade rather than gross trade, which is a far smaller amount.

Treasury Secretary Yellen and her Deputy Wally Adeyemo like to issue press releases announcing each new round of sanctions. Their complete lack of practical business experience and common sense make them blind to the fact that the Russians and Chinese can foil the sanctions faster than the U.S. can issue them.

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