The Shanghai Cooperation Organization (SCO) is an international intergovernmental organization which focuses on regional development and security issues. It was founded in 2001, with China, Russia, Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan as founding members, and added India and Pakistan as members in 2017. The SCO is the largest regional organization both geographically and by population in the world, and is the Eurasian counterpart to NATO (1).
The region of Central Asia has vast and relatively untapped natural energy (2) and mineral resources (3) which, combined with the three resource-heavy member states of Russia, China and India (4), indicates the SCO alliance possesses some of the world’s largest amounts of natural resource reserves. Picking Geopolitical Sides As the military crisis in Ukraine continues, it becomes interesting to note the correlation between the nations who have condemned and sanctioned Russia and those who have not, with the geographical outlines of NATO and the SCO.
China has refused to cave to US threats (5) over choosing not to condemn and sanction Russia for its actions in Ukraine, and instead criticized NATO’s ongoing “Cold War” mentality while confirming that Beijing will maintain trade relations with Russia. China further opposed the sanctions placed on Russia by the West, stating they were damaging to the world economy while being ineffective in solving the situation, and instead offered solutions to Russia to circumvent some of the challenges the sanctions have created (6).
India too has chosen its side (7) by accepting Russia’s offer to purchase discounted crude oil and other commodities (8) while looking into a rupee-ruble payment system to skirt sanctions (9). India is also ready to fill the holes which fleeing western companies have left in Russia (10), while Pakistan has refused to be seen as a “slave” to the US by succumbing to pressure to renounce Russia (11). Several non-SCO nations are discovering where they lean as pressures are placed on them—mostly by the US—to pick a side.
The consensus seems consistent amongst Middle Eastern nations, including Israel, who have refused to join the US/NATO in sanctioning Russia (12), with some echoing China’s stance of NATO’s culpability in the conflict (13). Brazil (14), Mexico (15), Serbia (16), and roughly half of the African nations (17) have either decided against sanctions or expressed neutrality to the issue. Turkey continues to play the middle-man game due to both friendly and unfriendly relations with both sides.
Erdogan has refused to sanction Russia and is playing arbitrator between Russia and Ukraine (18). As the lines are being drawn, we can observe that the economies on one side is resource and production driven (SCO), while on the other side they are driven by debt and require military might to maintain geopolitical superiority (US/NATO). Russian Sanctions and SWIFT Alternative While locking Russia out of the SWIFT system has been labeled the “nuclear option” by the West (19), experts citing Iran’s experience disagree (20), arguing instead that this move may not bode well for Europe (21), and that weaponizing the dollar is likely to propel the world faster towards de-dollarization (22).
Russia has several possible SWIFT alternatives— such as its own SPFS for transfers within the EEU or China’s CIPS for cross-border payments—and any successful move to non-dollar trade payments will effectively end the SWIFT’s hegemony over international payment methods (23).
Russia is adapting to the sanction situation by opening Chinese bank accounts (24), and paying its debts in rubles rather than the dollars they no longer have access to (25), as well as insisting foreign buyers purchase Russian gas in rubles (26).
With help from China, Russia is able to maintain oil (27) and gas (28) exports, which will soften the blow that sanctions may otherwise have on the Russian economy. This could spell further energy troubles for Europe, who may soon find that Russia’s supply, once available to them, is now absorbed by China’s demand (29).
The situation is unfolding like a game of chess, and as each side makes their moves (30) it becomes increasingly apparent which side is likely to emerge as the winner (31).
In Conclusion From a Western-centric perspective, Russia may appear increasingly isolated, however, it’s really only isolated from the US and EU and retains friendly relations and trade partnerships throughout Asia, Africa, the Middle East, and South America—in short, that which makes up the majority of the world. Understanding just how well (or not) western sanctions are working can help investors anticipate how western markets and the USD might be adversely affected, gauge Russia’s strength and investment potential, and assess how likely the West might be to decide more extreme interventions (such as all-out war) are needed to save a dying economy (32).
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