What’s happening to Russian gold? A ban is in the works but the question is, how effective will it be in limiting Putin’s war chest?

Some of the world’s leading economic nations, including the United States and some members of the European Union and Group of Seven (G7), are working out the details of a ban on gold exports from Russia, with the plan expected to be formally approved as soon as this week.

The proposal was first mooted at the G7 summit in Bavaria last month but the fine print is being finalised by the US, United Kingdom, Canada and Japan, before the group votes on a ban on imports of Russian gold.

“Note that refined Russian gold is marked and dated and therefore straightforwardly identifiable,” the London Bullion Market Association (LBMA), the trade association representing the UK market for gold and silver bullion, said in a statement to Al Jazeera.

“The sanctions imposed from 24th June apply to all new Russian gold, but do not apply to Russian gold produced before this date and held outside that country.”

Haven’t some countries already banned Russian gold?

Yes, there has been an unofficial ban on Russian gold by the London market, as most buyers there stopped trading it when the LBMA removed Russian gold refiners from its accredited list in March.

When Britain announced its ban earlier this year, Boris Johnson’s government claimed that gold exports had become valuable to many Russian oligarchs in cahoots with The Kremlin, as they turned to bullion to bypass Western sanctions.

Market analysts believe the ban’s effects could be more political than economic because sanctions imposed on Russia have pretty much already shut down European and US markets for its gold.

Western governments sanctioned Russia’s main gold-trading banks, including VTB, Otkritie, and Sberbank, and many international banks, refiners and shippers stopped dealing with Russian bullion.

In addition, flows to major trading centres such as London and Zurich have definitely been affected due to sanctioning from within the precious metal industry itself, regardless of government intervention.

Why target gold?

Effectively a ban means it prevents Russian mining companies and banks, as well as wealthy individuals, from getting their hands on gold to swap for hard currencies – especially as the rouble has been hit by the war and sanctions.

The ultimate goal of these measures is to lighten Russia’s war chest by limiting its sources of major income.

How important is gold to the Russian economy?

Russia is the world’s second largest gold-producing nation and its exports of the precious metal were estimated to be worth about $15bn in 2021. China and Australia are the other countries topping the list of gold miners.

Last year, Russia mined 314 tonnes of gold, Reuters reported, citing Russian finance ministry data, accounting for nearly 10 percent of the shiny material produced globally.

Russian gold miners mainly sell their wares to domestic, commercial banks, which usually then purvey them to the Moscow central bank or export it. The company Polyus is the country’s largest gold producer, followed by Polymetal.

In the past decade or so the vast majority of Russia’s gold was sent to the UK, the world’s biggest bullion trading centre. Britain imported $15.2bn worth of Russian gold last year, according to Comtrade, the United Nations’ database of international trade statistics.

But in recent years Russia has also sent gold to countries including Switzerland, Turkey and Kazakhstan, according to trade data.

So, while a ban on Russian gold would cause some waves back home, it would not be on the same level as say the proposed oil or gas price caps.

Fawad Razaqzada, a market analyst for financial services firm City Index, said: “It is not that important for the Russian economy, but as the saying goes, the Western sanctions are designed to kill with a thousand cuts and this is just one of those.”

Will a ban have much effect on supply to Western markets?

The World Gold Council (WGC) does not expect the G7 ban to have a “significant impact” on the global gold market, it said.

“Due to large above-ground stocks, there is ample gold available to meet fabrication and trading needs,” it said in a statement to Al Jazeera.

So in effect, while Russia is a large producer of gold, its supply might still not be enough of a factor for any ban on new gold to rock the markets noticeably. But has even a small reduction in supply meant prices have risen?

“You would think this would be the case,” said Razaqzada. “But gold prices have actually fallen quite sharply in recent months, suggesting that the Russian ban has had no impact at all.

“The impact of the ban is likely to be limited, given that the industry had already taken steps to restrict Russian gold.”

The LBMA in its statement added: “The 24th June sanctions apply a further level of restrictions on the Russian economy.

“From a UK perspective however, we would not anticipate – and have not seen – any significant change to the efficient operation of the London market which is the global OTC [over the counter] market for physical, wholesale gold.”

OTC commodities are securities traded via a broker-dealer network as opposed to on a centralised exchange.

Where does Russian gold go instead?

At least six months of economic turmoil, war and global political brinkmanship means that currently Russia’s gold buyers are mainly made up of the country’s central bank, domestic commodities clients who want to keep their money in something safe, and buyers in Asia, especially China and India, who have not sanctioned Moscow.

As both nations continue to buy Russian crude oil at discounted prices, it seems logical that gold traders in both would be somewhat unmoved by a ban on Russian bullion in the west.

“[Russia’s] gold exports have already been rerouted since the start of the war, flowing eastwards rather than westwards, reflecting self-sanctioning from Western world gold market participants,” said Carsten Menk, a senior analyst at commodities broker Julius Baer.

“The implications of a ban on the gold market are likely very limited.”

Razaqzada added: “The impact on the Russian economy is going to be negligible, as it will still likely sell gold to its existing customers in some Asian countries, whereas the West had already cut imports of almost everything bar energy from Russia when the

So what is the point of such a ban?