Putin final lifeline ruined as £100bn 'fortress Russia' about to CRUMBLE – gold stash hit

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G7 leaders met at NATO headquarters in Brussels on Thursday to tighten economic sanctions against Putin’s regime in retaliation to Russia’s invasion of Ukraine four weeks ago. The group of seven leaders and the EU announced they were clamping down on Russia’s ability to sell its gold reserves – a “last resort” experts say could provide a lifeline for Moscow and allow Putin to bypass financial sanctions imposed by the West.

Speaking ahead of the G7 meeting, Prime Minister Johnson said the UK and West must “tighten the economic vice” around Putin, including ensuring the Russian leader cannot sell his gold elsewhere.

US President Joe Biden has also emphasised that Russian gold is off-limits to the West, backing sanctions that restrict Putin’s ability to use his gold supplies to support the war in Ukraine, where Kremlin forces have been accused of targeting civilians and committing war crimes.

The White House said in a statement: “G7 leaders and the EU will continue to work jointly to blunt Russia’s ability to deploy its international reserves to prop up Russia’s economy and fund Putin’s war, including by making clear that any transaction involving gold related to the Central Bank of the Russian Federation is covered by existing sanctions.”

Russia has roughly $132billion (£100billion) in gold reserves, which Putin has reportedly been stockpiling since 2014 in anticipation of Western sanctions over Russia’s aggression towards Ukraine.

Existing sanctions imposed by the West already prevent Russia from trading its gold with Western countries, particularly sanctions on Russia’s Central Bank.

The restrictions against Moscow cover any transactions involving Russia’s Central Bank, Ministry of Finance and National Wealth Fund, including those dealing with Russian gold.

However, experts warn that Russia could still sell billions of dollars worth of the precious metal elsewhere, providing a flow of cash that could be used to support the floundering economy.

Putin gold

Putin has reportedly been stockpiling gold in anticipation of Western sanctions over Ukraine. (Image: GETTY)

G7 leaders

G7 leaders met on Thursday to discuss tightening restrictions on Russia. (Image: GETTY)

Edoardo Saravalle, a sanctions expert at Columbia University in New York, explained the Russian leader had been stockpiling gold since the US applied sanctions on the country in 2014 following the annexation of Crimea.

He said Putin has long planned to use gold to try to prop up the economy as it becomes increasingly isolated from global financial systems, creating a so-called “fortress Russia”.

He told Express.co.uk: “Putin had spent the time between 2014 and the invasion preparing himself to withstand Western sanctions.

“And one of the things he did was limit exposure to the dollar and accumulate foreign exchange reserves to be ready, and gold was part of it.

“Russia was a huge buyer of gold for many years, but it wasn’t just about accumulating gold, but also locating the gold in Russia.

“All these things were meant to prepare Russia for some kind of sanctions.”

However, Western sanctions have already scuppered his plans to some extent, particularly sanctions on the central bank.

Mr Saravalle said: “The way the United States, the UK and the EU have imposed sanctions, including limiting transactions with the central bank, has basically made it so that many of these preparations turned out not to be as helpful in cushioning the blow for Russia as they might have expected.”

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Vladimir Putin has been accused of committing war crimes in Ukraine. (Image: GETTY)

But existing sanctions do not cover all of Russia’s gold reserves, for example, gold that resides in a non-sanctioned Russian bank or has been transferred to a non-sanctioned individual.

These gold reserves could still be used by Russian government officials and oligarchs to launder money or for foreign exchange in unregulated markets, where countries can buy Russian gold for cash.

Mr Saravalle explained that, while sanctions have ensured that US, EU and UK entities will not make any dealings involving Russian gold, that still leaves the “rest of the world” as potential buyers.

He said: “While the US, EU and UK isn’t a market, that leaves potentially the rest of the world as buyers, so there is potentially a broad market.”

He added: “Right now, what the sanctions do is ensure that a huge chunk of the global potential ecosystem of buyers is not allowed to buy the gold because they can’t deal with a central bank.

“And so that kind of crimps the demand for gold. So it’s not frozen, but it just has fewer potential buyers. But places like India and China could buy the gold, and so that’s how it preserves some potential.”

However, he noted that many countries will likely stay away from Russian gold as Western countries clamp down on the commodity, even if they didn’t necessarily circumvent sanctions.

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Ukraine war Mariupol

Destruction in the Ukrainian city of Mariupol, which has been under heavy bombardment for weeks. (Image: GETTY)

He explained: “I’m sure some are probably likely to stay away from it because they don’t want to risk running afoul of Western sanctions.

“There’s also a reputational concern of helping give Russia a lifeline – a lot of companies have refrained from dealing with Russia even though they are technically allowed just because they don’t want to seem to be appeasing or helping the Russian invasion.”

New legislation making its way through the US Congress is looking to impose an even tighter lockdown on Russia’s gold reserves as G7 leaders consider how they can make sure Putin cannot use the precious metal to fund his war.

The bipartisan bill would apply secondary sanctions to any American entities that knowingly transact with or transport gold from Russia’s central bank holdings. They would also face sanctions if they sold gold physically or electronically in Russia.

Senator Angus King, one of the US politicians who introduced the bill, said in a statement: “Russia’s massive gold supply is one of the few remaining assets that Putin can use to keep his country’s economy from falling even further.

“By sanctioning these reserves, we can further isolate Russia from the world’s economy and increase the difficulty of Putin’s increasingly-costly military campaign.”

Mr Saravalle explained that the bill would prohibit US entities from dealing with foreigners who transacted in gold with Russia, forcing countries to choose between doing business with the US or buying Russian gold.

Joe Biden

Joe Biden has backed measures to cut off Russia’s access to its gold reserves. (Image: GETTY)

He added: “This will be a very aggressive and targeted way of stopping a potential lifeline for the Russian government.”

However, even with the new restrictions brought in by the West, Putin could still sell his gold in “illicit” markets, following in the footsteps of Venezuelan President Maduro who shipped gold to unregulated markets around the world to sell, with the support of the Russian government. 

Maduro’s sales of the gold have provided a lifeline for the stuttering economy, although Mr Saravelle noted that selling gold on illegal markets would not be enough to support Russia’s much larger economy.

“There’s definitely potential interest from these extra legal gold buyers, but it’s really a last resort way of raising funds. And once you’re doing that, you aren’t getting the full price of the gold and it’s logistically complex.

“It’s helpful as a last resort means of obtaining currency but it’s not something you can do day in and day out to manage an economy.”

Mr Saravalle added that the latest announcement from G7 leaders sent a clear message to any country considering trading Russian gold.

He said: “This is definitely a step forward in limiting Russia’s use of its gold. For sanctions to work it’s not just about the specific rules on the books, but also about enforcement and communicating that the United States will go after violations.

“Clarifying that these transactions would be violations puts potential customers on notice and will likely chill Russia’s efforts to use its gold.”

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