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G7 Summit focuses on Ukraine support and shattering Russia’s wartime economy

Strong show of G7 leader unity despite problems many leaders face back home
www.g7italy.it
Official Family Photo of G7 Leaders in Apulia

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Despite last week’s expert punditry (itself almost indistinguishable from AI) on the latest G7 decisions as exhibited by the “instant experts” on global issues fielded by most major news services, it is important to keep one’s focus on significant progress on two essential fronts. No, this is not a reference to the wars in Gaza, Sudan or the UN’s latest plea for humanitarian aid, the subject at hand as we move into summer is how to usefully reinforce Ukraine’s wartime resilience before the upcoming winter and how to most effectively paralyze Russia’s so-called “war/wartime economy” and end Putin’s threat to the West once and for all.

Aid to Ukraine – now to be partially Moscow funded

First, support for Ukraine has been at the top of each G7 Summit Agenda since Russia invaded in February 2022.  Announcements of new military support packages specifically timed for each Summit are nothing new, in fact the Summits become the action forcing events needed to get new aid packages released on a timely basis. This time however, U.S. President Joe Biden came bearing a ten-year security agreement with Ukraine, ready to sign with President Volodymyr Zelensky on the Summit’s sidelines.

Nevertheless, the June 13-15 Apulia G7 Summit (see full communique) will undoubtedly be remembered in diplomatic history as the G7 Summit which finally produced a broad agreement to tap into and begin to monetize frozen Russian assets to generate funding for Ukraine’s war effort.

As noted in the communique, the G7 intends to launch a so-called “Extraordinary Revenue Acceleration (ERA) Loan for Ukraine,” in order to make available approximately USD 50 billion in additional funding to Ukraine by the end of 2024. After prolonged negotiations, the G7 was able to formally declare that it intends to provide financing that will be SERVICED and REPAID by future flows of extraordinary revenues stemming from the immobilization of Russian Sovereign Assets held in the European Union and other relevant jurisdictions. In language that must have been extremely troubling for the Kremlin, the G7 “confirmed that, consistent with all applicable laws and our respective legal systems, Russia’s sovereign assets in our jurisdictions will remain immobilized until Russia ends its aggression and pays for the damage it has caused to Ukraine.”  No wonder that Putin immediately declared new G7 plans to finance Ukraine to be “theft” and threatened retaliation.

A large number of technical questions about the loan to Ukraine were left uncovered in the Apulia G7 Communique which noted “we task our relevant Ministers and officials to operationalize these commitments in time for ERA to begin disbursing before year-end.”  One element of this statement is critical — that the loan begin disbursing before any potential change of administration in Washington. But the U.S., with a very small share of the estimated total of USD 280 billion in frozen Russian assets under its direct control, has not been the real problem in these negotiations, it has been EU member states who at the senior working levels could not overcome fears of Russian retaliation (i.e. European asset seizures in Russia) and of private legal challenges, depending on each country’s legal system.

Finally, after years of negotiations, a settlement has been reached.  With the G7 leaders now all on board, that internal EU country bureaucratic resistance is now fading; all observers are waiting for any concrete Russian reaction. Several press leaks before the Apulia Communique was agreed have referred to a new Ukraine loan program administered by the World Bank. This has yet to be confirmed.  

Sanctions ramped up yet again      

Separate from the negotiations over already frozen Russian assets held in the West, there was time at Apulia for more coordination on the G7 sanctions against Russia.  Over the last two years history has shown that there are practically no major meetings of allied heads of state without some new Ukraine-related sanctions packages being rolled out, and Apulia was no different in this regard.

In most cases over the last year “new” sanctions packages are usually little more than incremental modifications and tightening of loopholes against newly-emerged diversion channels. Washington’s latest package fits that category, but in addition new U.S. Treasury Department provisions severely tighten restrictions on many banking activities that support the Russian war economy, which has been an ongoing process since late 2023. The Treasury Department’s expansion of so-called “secondary sanctions” will now allow the United States to block any bank around the world that does business with Russian financial institutions already facing sanctions. The declared objective is to prevent smaller banks in China and other countries from funding the Russian war effort.

Beyond banking sanctions, the Treasury Department has added another 200 individuals and entities to its sanctions list, both inside and outside of Russia – including entities in the PRC – and introduced prohibitions on certain software and IT services with the aim of degrading Russia’s war machine. The new sanctions also target networks Russia uses to obtain critical materials for building aerial drones, anti-drone equipment, industrial machinery and for the country’s chemical and biological weapons program.

“Russia’s war economy is deeply isolated from the international financial system, leaving the Kremlin’s military desperate for access to the outside world,” said Treasury Secretary  Janet Yellen when the new sanctions were issued June 12. “Today’s actions strike at their remaining avenues for international materials and equipment, including their reliance on critical supplies from third countries. We are increasing the risk for financial institutions dealing with Russia’s war economy and eliminating paths for evasion, and diminishing Russia’s ability to benefit from access to foreign technology, equipment, software, and IT services. Every day, Russia continues to mortgage its future to sustain its unjust war of choice against Ukraine.” 

The State Department is separately targeting over 100 entities and individuals engaged in the development of Russia’s future energy, metals, and mining production and export capacity; sanctions evasion and circumvention; and furthering Russia’s ability to wage its war against Ukraine. 

The U.S. Government remains concerned by the scale and breadth of exports from the People’s Republic of China (PRC) that supply Russia’s military-industrial base. Accordingly,  the State Department moved to sanction PRC companies providing Russia with a wide range of dual-use goods that fill critical gaps in Russia’s defense production cycle. The State Department also took action to counter the support that the Lukashenka regime in Belarus is providing for Russia’s aggression against Ukraine.

The Moscow Exchange, Russia’s top financial marketplace, announced June 14 it was temporarily halting trading of dollars and euros after being listed in the new sanctions.  Exchange operations were reported to be close to normal levels on Monday June 17. 

Do not forget the rest of the planet

One should not forget that all G7 Summits cover a host of global issues, and most G7 Communiques come out of the extended negotiating process sounding like enhanced versions of a major country leader’s speech to the UN General Assembly. This year’s Communique is no different, but few can take the time to read the complete 36-page document. Full text available here.   

Beyond the document’s Ukraine Russia focus, China and the Middle East receive the most attention, although there is essentially something for everyone in the Communique.  It will keep think tanks, NGO’s and policy analysts busy at least until the UN General Assembly convenes in September.

G7 action regarding the war in Gaza essentially amounted to a declaration of broad support for President Biden’s latest ceasefire and peace proposal with a warning to the Houthis in Yemen thrown in.

Managing growing global economic competition from China received substantial attention; both the U.S. and EU have recently hit China with massive tariff hikes over its surging electric vehicle exports.

Demonstrating a shared approach on this subject, the G7 leaders expressed their concerns about “China’s persistent industrial targeting and comprehensive non-market policies and practices that are leading to global spillovers, market distortions and harmful overcapacity in a growing range of sectors, undermining our workers, industries, and economic resilience and security” in the Communique.

The G7 also expressed its collective intention to further insulate members from potential Chinese economic extortion. It noted “We are de-risking and diversifying supply chains where necessary and appropriate, and fostering resilience to economic coercion.”

Welcome changes in G7 operational procedures – more openness

Hosting the summit, Italian Prime Minister Giorgia Meloni invited a large number of guests including heads of state of India, Brazil, Turkey and the United Arab Emirates.  Accordingly, it is difficult to argue the Global South was ignored by an “elitist group” of rich countries, as leftists often label the G7. Pope Francis also made an appearance – a first for a pontiff, and focused his energy on the subject of artificial intelligence.

Italian analysts believe these invitations reflect Meloni’s wider political ambitions in Africa and the Mediterranean, but were also designed to broaden the outreach of the G7, often accused of being too Western and exclusive as noted above. A number of G7 members believe the group cannot address world problems or confront threats from China and Russia by simply negotiating with each other and publicizing their shared views.

 

 

 

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CEO/Editor-in-Chief.  Former US diplomat with previous assignments in Eastern Europe, the UN, SE Asia, Greece, across the Balkans, as well as Washington DC.

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