As the Russian troops withdrew from around Kyiv, images of dead civilians in the town of Bucha led to further outrage among many countries resulting in a new round of trade and financial sanctions being imposed by the U.S., EU, U.K., Canada, Japan, Australia and New Zealand. The atrocities also led to a vote at the U.N. to suspend the Russian Federation from the Human Rights Council.
Keeping up with all sanctions being imposed is challenging in light of the expanding set of actions being taken although different organizations have compiled lists. The version I reviewed was updated on April 8, 2022 and shows actions through April 7. “Reuters is tracking government sanctions and actions against Russia taken by large companies and organisations around the world in the lead up to and following its invasion of Ukraine.” Reuters shows sanctions imposed by 41 governments (viewing the EU as 27) and 99 actions taken by large companies and organizations.
A fact sheet released by the White House on April 6 summarizes actions being taken by the United States in light of the continuing Russian aggression and atrocities. The fact sheet is copied below.
“Today, the United States, with the G7 and the European Union, will continue to impose severe and immediate economic costs on the Putin regime for its atrocities in Ukraine, including in Bucha. We will document and share information on these atrocities and use all appropriate mechanisms to hold accountable those responsible. As one part of this effort, the United States is announcing devastating economic measures to ban new investment in Russia, and impose the most severe financial sanctions on Russiaʼs largest bank and several of its most critical state-owned enterprises and on Russian government officials and their family members. These sweeping financial sanctions follow our action earlier this week to cut o Russiaʼs frozen funds in the United States to make debt payments. Importantly, these measures are designed to reinforce each other to generate intensifying impact over time.
“The United States and more than 30 allies and partners across the world have levied the most impactful, coordinated, and wide-ranging economic restrictions in history. Experts predict Russiaʼs GDP will contract up to 15 percent this year, wiping out the last fieen years of economic gains. Inflation is already spiking above 15 percent and forecast to accelerate higher. More than 600 private sector companies have already le the Russian market. Supply chains in Russia have been severely disrupted. Russia will very likely lose its status as a major economy, and it will continue a long descent into economic, financial, and technological isolation. Compared to last year, U.S. exports to Russia of items subject to our new export controls have decreased 99 percent by value – and the power of these restrictions will compound over time as Russia draws down any remaining stockpiles of spare parts for certain planes, tanks, and other resources needed for Putinʼs war machine.
“As long as Russia continues its brutal assault on Ukraine, we will stand unified with our allies and partners in imposing additional costs on Russia for its actions. Today, the United States is announcing the following actions:
“Full blocking sanctions on Russiaʼs largest financial institution, Sberbank, and Russiaʼs largest private bank, Alfa Bank. This action will freeze any of Sberbankʼs and Alfa Bankʼs assets touching the U.S financial system and prohibit U.S. persons from doing business with them. Sberbank holds nearly one-third of the overall Russian banking sectorʼs assets and is systemically critical to the Russian economy. Alfa Bank is Russiaʼs largest privately-owned financial institution and Russiaʼs fourth largest financial institution overall.
“Prohibiting new investment in the Russian Federation. President Biden will sign a new Executive Order (E.O.) that includes a prohibition on new investment in Russia by U.S. persons wherever located, which will further isolate Russia from the global economy. This action builds on the decision made by more than 600 multinational businesses to exit from Russia. The exodus of the private sector includes manufacturers, energy companies, large retailers, financial institutions, as well as other service providers such as law and consulting firms. Todayʼs E.O. will ensure the enduring weakening of the Russian Federationʼs global competitiveness.
“Full blocking sanctions on critical major Russian state-owned enterprises. This will prohibit any U.S. person from transacting with these entities and freeze any of their assets subject to U.S. jurisdiction, thereby damaging the Kremlinʼs ability to use these entities it depends on to enable and fund its war in Ukraine. The Department of Treasury will announce these entities tomorrow.
“Full blocking sanctions on Russian elites and their family members, including sanctions on: President Putinʼs adult children, Foreign Minister Lavrovʼs wife and daughter, and members of Russiaʼs Security Council including former President and Prime Minister of Russia Dmitry Medvedev and Prime Minister Mikhail Mishustin. These individuals have enriched themselves at the expense of the Russian people. Some of them are responsible for providing the support necessary to underpin Putinʼs war on Ukraine. This action cuts them off from the U.S. financial system and freezes any assets they hold in the United States.
“The U.S. Treasury prohibited Russia from making debt payments with funds subject to U.S. jurisdiction. Sanctions do not preclude payments on Russian sovereign debt at this time, provided Russia uses funds outside of U.S. jurisdiction. However, Russia is a global financial pariah — and it will now need to choose between draining its available funds to make debt payments or default.
“Commitment to supporting sectors essential to humanitarian activities. As we continue escalating our sanctions and other economic measures against Russia for its brutal war against Ukraine, we reiterate our commitment to exempting essential humanitarian and related activities that benefit the Russian people and people around the world: ensuring the availability of basic foodstuffs and agricultural commodities, safeguarding access to medicine and medical devices, and enabling telecommunications services to support the flow of information and access to the internet which provides outside perspectives to the Russian people. These activities are not the target of our efforts, and U.S. and Western companies can continue to operate in these sectors in Russia. When necessary, relevant departments and agencies will issue appropriate exemptions and carveouts to ensure such activity is not disrupted.”
Similarly, the European Commission announced proposed additional sanctions (fifth round) on April 5 and agreed sanctions were announced by the Council of the European Union on April 8. The Councilʼs statement is copied below.
“In light of Russiaʼs continuing war of aggression against Ukraine, and the reported atrocities committed by Russian armed forces in Ukraine, the Council decided today to impose a fifth package of economic and individual sanctions against Russia.
“The agreed package includes a series of measures intended to reinforce pressure on the Russian government and economy, and to limit the Kremlinʼs resources for the aggression.
“ʻThese latest sanctions were adopted following the atrocities committed by Russian armed forces in Bucha and other places under Russian occupation. The aim of our sanctions is to stop the reckless, inhuman and aggressive behaviour of the Russian troops and make clear to the decision makers in the Kremlin that their illegal aggression comes at a heavy cost.ʼ Josep Borrell, High Representative for Foreign Affairs and Security Policy
“The package comprises:
“- a prohibition to purchase, import or transfer coal and other solid fossil fuels into the EU if they originate in Russia or are exported from Russia, as from August 2022. Imports of coal into the EU are currently worth EUR 8 billion per year.
“- a prohibition to provide access to EU ports to vessels registered under the flag of Russia. Derogations are granted for agricultural and food products, humanitarian aid, and energy.
“- a ban on any Russian and Belarusian road transport undertaking preventing them from transporting goods by road within the EU, including in transit. Derogations are nonetheless granted for a number of products, such as pharmaceutical, medical, agricultural and food products, including wheat, and for road transport for humanitarian purposes.
“- further export bans, targeting jet fuel and other goods such as quantum computers and advanced semiconductors, high-end electronics, soware, sensitive machinery and transportation equipment, and new import bans on products such as: wood, cement, fertilisers, seafood and liquor. The agreed export and import bans only account for EUR 10 billion and EUR 5.5 billion respectively.
“- a series of targeted economic measures intended to strengthen existing measures and close loopholes, such as: a general EU ban on participation of Russian companies in public procurement in member states, the exclusion of all financial support to Russian public bodies, an extended prohibition on deposits to crypto-wallets, and on the sale of banknotes and transferrable securities denominated in any official currencies of the EU member states to Russia and Belarus, or to any natural or legal person, entity or body in Russia and Belarus.
“Furthermore, the Council decided to sanction companies whose products or technology have played a role in the invasion, key oligarchs and businesspeople, high-ranking Kremlin officials, proponents of disinformation and information manipulation, systematically spreading the Kremlinʼs narrative on Russiaʼs war aggression in Ukraine, as well as family members of already sanctioned individuals, in order to make sure that EU sanctions are not circumvented.
“Moreover a full transaction ban is imposed on four key Russian banks representing 23% of market share in the Russian banking sector. After being de-SWIFTed these banks will now be subject to an asset freeze, thereby being completely cut o from EU markets.
“In its conclusions of 24 March 2022, the European Council stated that the Union remains ready to close loopholes and target actual and possible circumvention of the restrictive measures already adopted, as well as to move quickly with further coordinated robust sanctions on Russia and Belarus to effectively thwart Russian abilities to continue the aggression.
“Russiaʼs war of aggression against Ukraine grossly violates international law and is causing massive loss of life and injury to civilians. Russia is directing attacks against the civilian population and is targeting civilian objects, including hospitals, medical facilities, schools and shelters. These war crimes must stop immediately. Those responsible, and their accomplices, will be held to account in accordance with international law. The siege of Mariupol and other Ukrainian cities, and the denial of humanitarian access by Russian military forces are unacceptable. Russian forces must immediately provide for safe pathways to other parts of Ukraine, as well as humanitarian aid to be delivered to Mariupol and other besieged cities.
“The European Council demands that Russia immediately stop its military aggression in the territory of Ukraine, immediately and unconditionally withdraw all forces and military equipment from the entire territory of Ukraine, and fully respect Ukraineʼs territorial integrity, sovereignty and independence within its internationally recognised borders.
“The relevant legal acts will soon be published in the Official Journal.”
As listed above, the Official Journal with the legal actions identified was published on April 8 (OJ L111).
The United Kingdom also took action on April 6 to expand sanctions. The sanctions announced in the press release are listed below.
“Key sanctions announced today include:
“asset freezes against Sberbank and Credit Bank of Moscow. Sberbank is Russiaʼs largest bank and this freeze is being taken in co-ordination with the US
“an outright ban on all new outward investment to Russia. In 2020 UK investment in Russia was worth over £11 billion. This will be another major hit to the Russian economy and further limit their future capabilities
“by the end of 2022, the UK will end all dependency on Russian coal and oil, and end imports of gas as soon as possible thereafter. From next week, the export of key oil refining equipment and catalysts will also be banned, degrading Russiaʼs ability to produce and export oil – targeting not only the industryʼs finances but its capabilities as a whole
“action against key Russian strategic industries and state owned enterprises. This includes a ban on imports of iron and steel products, a key source of revenue. Russiaʼs military ambitions are also being thwarted by new restrictions on its ability to acquire the UKʼs world-renowned quantum and advanced material technologies
“and targeting a further eight oligarchs active in these industries, which Putin uses to prop up his war economy.”
Canada, Japan and Australia also announced additional sanctions.
On April 8, President Biden also signed two Congressional bills into law, one suspending normal trade relations with Russia and Belarus and one banning imports of oil, gas and coal from Russia (President Biden had already banned such imports).
While major importing nations of Russian oil and gas have been unable or unwilling to date to cut o purchases of oil and gas, the level of economic and financial sanctions imposed on the Russian Federation and Belarus coupled with the withdrawal of major businesses (temporarily or permanently) from Russia are having significant negative effects on the Russian economy both short term and longer term. These effects coupled with the damage to the Ukrainian economy inflicted by the Russian war on Ukraine will have global effects. As reviewed in an earlier post, Ukraine and Russia are major exporters of various agricultural products. The war is both creating increased food insecurity and driving inflation on agricultural products which hurts all consumers but the poorest the hardest.
The WTOʼs Director-General Ngozi Okonjo-Iweala has indicated that global trade growth will be nearly 50% lower than previously projected for 2022 (2.5% vs. 4.7%) flowing from the war in Ukraine and ongoing supply chain issues. The war and individual countries reactions to Russiaʼs aggression are also likely to have longer term effects on global integration and supply chains. One is already seeing significant reductions in foreign investment flows into China. Chinaʼs actions or inactions towards Russiaʼs aggression may reduce foreign investor confidence in the Chinese economy as a place for investment at least for exports. A return to isolation of some countries from the larger global community is certainly afoot. The only question is whether states besides Russia and Belarus will be in the ostracized group.
With Russia continuing its aggression against Ukraine and with apparent scorched earth tactics being pursued, it is likely that the latest round of sanctions will not be the last. The strains on the global economy are likely to worsen in the coming months.
Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.
To read the full commentary from Current Thoughts on Trade, please click here.