Opinion – Rodrigo Tavares: The risks of the financial war

Commercial boycotts are recurrent. After the Santa Cruz Massacre in East Timor in 1991, Portugal boycotted the import of Indonesian products. In the 1980s, more than 200 US companies cut trade links with South Africa in protest against apartheid. The Boston Tea Party of 1773, a commercial protest action, sparked US independence.

But in the current hyperglobalized and connected context, commercial and financial boycotts are no longer expressions of displeasure and reach apocalyptic proportions. Without sending a single soldier to the theater of war, Western countries are suffocating the Russian economy and neutralizing the personal privileges of Putin and his entourage through trade boycotts, economic sanctions and financial divestments. The Russian president might have been ready for World War III, but he was not ready for World War I financially.

These instruments of economic-financial opposition have been efficient as an argument for war. But they are more reactive than morphological, more oriented towards short-term change than towards structural transformations, more moralistic and spontaneous than rational and prudent. In the last week, in small Telegram groups of which I am a part, representatives of governments and European think-tanks asked what other types of sanctions they could apply or propose, as if war were a board game.

In addition, the boycott can also harm the boycotter. BP, which decided to sell the 20% it held in the oil giant Rosneft, will lose money with the scrambled and hasty exit. Shell and Equinor also announced sudden sales of Russian assets. As a comparison, the decision of the French company Total to abandon its operations in Myanmar, due to the violation of human rights, announced last month, took about 2 years to take. Limiting the circulation of Russian products and capital will lead to price inflation and distortion of the value of various currencies in global markets.

There is also a risk that the 2022 boycotts will provide opportunistic reading. Putin was Putin when he carried out a “humanitarian military intervention” in Georgia in 2008, when he annexed Crimea and Sevastopol in 2014, when he intervened in the 2014 Ukrainian Revolution, when he used sarin gas in Syria in 2017, or when he poisoned political opponents such as Alexei Navalny. , in 2020. The international community has always reacted with some indifference of acts, despite the verbal quarrel. The despot Putin of today is no different from the Putin of the last 20 years. How many Western heads of state agreed to be received with state honors in the Kremlin during this period?

There is also room for inconsistencies. This week Switzerland broke its historic neutrality and private banks agreed to freeze billions of dollars of Russian oligarchs’ fortunes. But they continue to accept managing the assets of Asian and Latin American dictators or African warlords, despite international sanctions.

Shell has decided to sell the 28% it owns in the Sakhalin-II liquefied natural gas facility in Russia, but is exploring the Dragón field, located in northern Venezuela, in partnership with state-owned PDVSA. Equinor announced that it will exit its joint ventures in Russia, but it has a natural gas exploration license in Cocuina, also in the north of the Latin American country. Is the damage Putin inflicts on Ukrainians more serious than the damage done by Maduro to Venezuelans?

In addition to Western oil companies, several large investors such as the USS, Storebrand, the Norwegian sovereign wealth fund, KLP or the Church of England, announced divestitures in Russian assets, both debt and equity. But to divest means to sell. And whoever sells must have a buyer. As dozens of studies in sustainable finance demonstrate, if the objective is to promote positive change, it is easier to do so as a shareholder than simply selling assets to a buyer who potentially has no inclinations towards environmental preservation, social welfare or good corporate governance (ESG).

Furthermore, the blocking of the Russian Central Bank’s international reserves (40% are in Europe and the US), without a UN Security Council resolution, is a difficult measure to justify under international law and sets a worrying precedent that it can be used perniciously and discretionally in less consensual geopolitical contexts.

And what criteria should be used to put an end to the use of this financial arsenal against Russia? What will drive the political, diplomatic, sporting, economic and financial community to end boycotts and sanctions? The end of the war? On what terms? Putin’s fall? The improvement of democratic indices in Russia? The criteria do not exist or are vague, giving rise to possible contradictions and discretion in the coming months.

Unfortunately, when the weapons are silent, the international community, also silent, will have to start to reestablish economic links with Russia, without any structural changes being carried out.

The financial world war is justified and just (jus ad bellum), but is the international community truly prepared to fight it? Conventional armed warfare is conditioned by international treaties, such as the Geneva Conventions and their Additional Protocols of 1949, which try to prevent barbarism. The new financial wars will also need institutional clarity and legal congruence to prevent discretion.