Laughing all the way to the bank

The Kremlin’s list of conditions for agreeing to a ceasefire in the Black Sea is notable for the fact that it does not include the lifting of sanctions on Russian energy exports, Russia’s main sources of foreign revenue.

Moscow did signal that it was ready to renounce the use of force and the deployment of commercial vessels for military purposes in the Black Sea provided that several conditions were met — including the lifting of sanctions on Russian Agricultural Bank, as well as on other financial institutions relating to Russia’s agricultural sector, and their reconnection to the SWIFT international payment network.

Other conditions include removing restrictions imposed on trade finance operations, lifting sanctions on companies producing and exporting food and fertilisers, allowing Russian ships to be served in foreign ports, exempting Russian ships transporting agricultural produce from sanctions, and allowing the supply of agricultural machinery to Russia again.

As lists of demands go, this is a very strange one for two reasons. Firstly, there are no sanctions on Russian fertiliser and agricultural produce, and their export is not only thriving but actually reached record levels last year. Secondly, these issues are ones that need to be taken up with Europe rather than the US. It was Brussels, not Washington, that imposed protective tariffs on Russian agricultural produce and which is currently considering using the same mechanism to block Russian fertiliser imports.

At the same time, Russia is one of the largest suppliers of fertilisers to the West. Like grain, fertilisers are not subject to sanctions simply as imposing them would drive up food prices worldwide and fuel inflation, Russian agricultural market experts Nikolay Sokolov* and Alexander Morozov* told Novaya Europe. Therefore, only the owners, senior management and shareholders in major Russian fertiliser producers have been sanctioned rather than the companies themselves.

As a result, Russia is the second-largest supplier of fertilisers to the US after Canada, with exports totalling over €1 billion in 2024, while the European Union spent over €1.5 billion on Russian fertilisers last year.

However, it is the European Union that is imposing trade barriers. EU producers have complained that the bloc’s dependence on Russia to provide it with fertilisers poses a threat to its security. While the EU is not yet prepared to abandon these fertilisers entirely, it is discussing a gradual increase in duties on Russian chemical products, set to continue until 2028.

These measures are already in place for agricultural products, and it was European import duties rather than sanctions that halted the supply of grain and oilseeds from Russia to Europe last summer, Morozov told Novaya Europe, adding that only their by-products are currently being sold in the EU.

Moscow is therefore discussing the removal of trade barriers with Washington, when it should actually be attempting to strike a deal with Brussels. Unlike the new US administration, the EU has not radically reversed its position and remains crystal clear that Russia must first end its aggression before anything else can be discussed. In fact, UK Prime Minister Keir Starmer is calling for even tougher sanctions.

As it happens, EU duties have not inflicted significant damage on Russia’s agricultural sector. Even before the tariffs were introduced, the amount of Russian grain sold to Europe was negligible, with over 90% of the country’s grain exports going to China, Turkey, Kazakhstan, Belarus, and other so-called “friendly” countries in Asia and Africa.

The current sanctions do not affect Russia’s lucrative exports of fish and seafood either, and in 2024, Russia was able to sell fish and seafood worth at least €2.3 billion to so-called “unfriendly” countries such as EU member states, South Korea, and Japan.

Russia will also have to negotiate with Brussels if it wants to see sanctions on agricultural machinery lifted, as it was EU sanctions that banned the import of components into Russia. Even if Brussels were to make concessions, which is unlikely, Moscow would then have to negotiate directly with the companies themselves before their operations in Russia could resume, which is bound to become a problem, as at least 10 companies supplying agricultural machinery left the Russian market of their own accord following the invasion of Ukraine.

All for SWIFT

If there are no sanctions to lift or no reason to discuss them with Washington, the Kremlin’s logic can be explained by two objectives: reputation and strategy.

The first of these is crucial for Russia. Since the beginning of the war, Russia has sought to present itself as the defender of global food security and the saviour of countries facing food shortages, Konstantin Vasilyev*, the head of a major Russian economic think tank, told Novaya Europe.

It was for this reason that Putin agreed to the grain deal in 2022 — creating a maritime corridor for the safe passage of agricultural shipments through the Black Sea — even though he withdrew from it a year later. Moscow has regularly signalled its readiness to come to the aid of countries suffering food shortages, and in some cases has even sent them grain free of charge. Such actions allow Russia to frame its demand that non-existent sanctions on agricultural products and fertilisers be lifted as humanitarian concern.

It would have been something of a tall order to build a reputation as a defender of the poor by calling for the lifting of sanctions on oil, a major source of revenue for Putin’s war machine.

Morozov, Vasilyev and Sokolov all agree that Moscow’s other strategic objective is to “sell” the idea of strengthening global food security while demanding the lifting of sanctions on Russian Agricultural Bank, which is currently sanctioned by the US, the EU, and the UK.

Russian Agricultural Bank was chosen for this purpose due to its close ties to the Kremlin elite. In the 2010s, it was led by Dmitry Patrushev, the son of close Putin ally and former Security Council Secretary Nikolay Patrushev. According to Morozov, FSB General Sergey Beseda, who attended the negotiations in Jeddah, would have been charged with keeping an eye on the Patrushev family’s business interests which include both the banking sector and the fishing industry.

Russia is also in urgent need of a major bank through which it can bring its export revenues onshore. As Vasilyev told Novaya Gazeta Europe, “these transactions are currently conducted via dubious black market schemes” involving chains of intermediaries, as Moscow tries to bypass the oil price cap restrictions. Russia is attempting to solve these problems through various means, although Putin’s recent proposal to create a parallel version of the SWIFT payment system for BRICS members did not gain the necessary support from the other countries in the bloc.

With the sanctioning in November of Gazprombank, which handled overseas payments for gas exports, Russia lost its last legal way of repatriating export revenues. But there would be no point in demanding sanctions on Gazprombank be lifted now, given how far gas exports to Europe have dwindled, Vasilyev told Novaya Europe.

The major drawback of all these methods of circumventing oil sanctions is that they leave an increasing share of revenues in the hands of intermediaries, while transactions are conducted in foreign currencies that are difficult to convert directly into rubles. This is why Moscow is willing to agree to a Black Sea ceasefire on the condition that Russian Agricultural Bank is not just removed from sanctions but also reconnected to the SWIFT system.

But even here there remains a major obstacle to overcome: as SWIFT has its headquarters in Belgium, Russia would have to negotiate its re-entry into the payment system not with Trump, but with far less accommodating European Union officials.

*Not their real names.