Banananomics: Off-limits Russian LPG Revealing New Iran Deal

Off-limits Russian LPG Revealing New Iran Deal

The E.U. placed new sanctions on Russia over its war on Ukraine, targeting Moscow's shadow fleet of tankers moving liquefied natural gas through Europe.

Inputs that matter: In response to sanctions, Gazprom, Russia's gas giant, has signed an agreement to consider supplying Russian gas to Iran.

• Gazprom and the National Iranian Gas Company (NIGC) signed the memorandum of understanding during Gazprom executives' visit to Tehran.

• Gazprom's top executive visited Iran while Russian President Vladimir Putin was visiting China for high-level talks.

• Having lost most of the European market, Gazprom is looking to pivot its sales to Russia's "friendly" countries, which include China and Iran.

The opportunity: Meanwhile, the Russian division of the Bank of China has suspended operations with Russian lenders sanctioned by the United States to avoid being hit with secondary sanctions.

• However, Reuters reported last week that an alternative payment channel for business between China and Russia was set up after President Vladimir Putin visited Beijing in May.

• According to that report, the new payment scheme involves smaller regional banks near the Russian-Chinese border.

• The workaround will allow Moscow to "fly below the U.S. sanctions radar" for a time, Reuters said, as the U.S. Treasury Department reportedly works to target smaller banks that help the Russian military.

Zoom in: Russian Foreign Ministry spokeswoman Maria Zakharova said on Wednesday that Moscow was working on a significant treaty with Iran.

• Her comment was a reference to a comprehensive bilateral cooperation agreement that is being negotiated between Tehran and Moscow.

Between the lines: Moscow must find other ways to pay for exports, or its sanctions-hit economy faces "ruination," one of President Vladimir Putin's top bankers has said, following moves by Chinese lenders to suspend transactions with Russian banks.

• Earlier this month, the U.S. and other countries unveiled a new wave of sanctions targeting Russian financial institutions, entities, and individuals who do business with them.

Follow the money: Trade between Russia and China has surged 121% since 2021, underscoring the Chinese role as Moscow's economic lifeline.

• The problems associated with the suspension of payments will likely extend beyond the banking sector, resulting in the state's decreasing control over it and rising risks of fraud.

• Peter Harrell, who served as White House senior director for international economics in 2021 and 2022, said the new sanctions were a "paradigm shift" that could lead to a "major retreat" of the remaining non-Western banks still doing business with Russia.

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