Russia - The world's most-sanctioned country

The European Commission has proposed that three more banks be excluded from Swift, including Sberbank, Russia’s largest lender, which controls more than a third of the country’s banking sector.

(iv) The U.K. has barred key Russian banks from the U.K. financial system, frozen all Russian banks’ assets, barred Russian firms from borrowing money, and imposed deposit limits on Russians in U.K. banks. 

• Military goods – A country which is amidst conducting a “special military operation” would irrefutably have a gargantuan appetite for military goods and mercenaries. Therefore, as one would expect, this is one of the critical areas that has been targeted.
  
  (i) EU, U.K. and U.S. have imposed a ban on the export of dual-use goods (items with both civilian and military purposes such as vehicle parts, solar cells etc) to Russia.
  
  (ii) The Wagner Group, a Russian private military company tasked with assassinating Ukraine’s president, has been sanctioned by the U.K.
  
  (iii) Among the top targets of U.S. sanctions is the Tactical Missiles Corporation. KTRV is a Russian state-owned defence conglomerate that produces hypersonic weapons and technology used in radar systems and other multipurpose missiles.

• Energy – Russia is the world’s largest exporter of natural gas, third-largest exporter of crude oil, and third-largest exporter of coal. Imposing sanctions on them implies a significant reduction in Russia’s income and a very dire situation for other countries.
  
  (i) On 8th March 2022, the US decided to pull the plug on all Russian oil, liquified natural gas, and coal imports setting energy prices to historic highs. In fact, only 1% of Russia’s crude oil is directed to the U.S. The U.S., thus, is in no position to harm Russia’s oil industry on its own. But the U.S. ban is not ineffective, either. The move has heightened the pressure on Russian energy companies, which have been cut off by private companies. Besides, the U.S. has also prohibited new investment in the energy sector in Russia by a United States person.
  
  (ii) Germany has frozen plans for the opening of the Nord Stream 2 gas pipeline from Russia which could have otherwise increased Russia’s natural gas export capacity directly to Germany and resulted in generating a huge cash flow.
  
  (iii) The U.K. intends to cut off Russian oil imports by the end of 2022 The EU has also stated that Russian coal imports shall be suspended by August. According to the European Central Bank, a 10% reduction in gas supplies to the eurozone would result in a 0.7% reduction in output, making an outright ban extremely damaging.

Russia has warned the world that banning its oil would have calamitous implications for the global market. But at the very least, the International Energy Agency (IEA), on May 12, affirmed that the world would not run out of oil even if Russia’s output was reduced due to sanctions.

On one hand, where Russia is facing huge losses, it as well announced a cutting off of natural gas deliveries to Poland and Bulgaria after both countries refused to comply with its request of making export payments in rubles.

Where the EU is slapping Russia with several economic sanctions, Russia’s monthly earnings from selling fossil fuels to the EU have nearly doubled, according to the Centre for Research on Energy and Clean Air. Since the start of the war, the EU has imported about $23 billion in fossil fuels per month from Russia, compared to an average of about $12.5 billion per month in 2021. 

Apart from these economic sanctions imposed on Russia, the United States, the European Union, the United Kingdom, and other countries have, sanctioned over 1,000 Russian individuals and businesses. 

Individual restrictive measures:

A list of individuals against whom sanctions have been imposed by western countries include: 

• Oligarchs, or wealthy business people, who are thought to be close to the Kremlin, such as Chelsea FC, former owner of Roman Abramovich.

• Russian officials and their families, including President Vladimir Putin’s adult children and Foreign Minister Sergei Lavrov’s relatives.

• The assets of Russian President Vladimir Putin and Foreign Minister Sergei Lavrov have been frozen in the U.S., the U.K., the European Union, and Canada.

• The United Kingdom has also halted the sale of “golden visas,” which allowed wealthy Russians to obtain residency in the United Kingdom.

It is interesting to note that the Russian Central Bank’s foreign reserves have been frozen around the world to the tune of €283 billion. In fact, early in April, the EU announced that its Task Force had frozen €29.5 billion in assets, including boats, real estate, artwork and helicopters and had blocked about €196 billion in transactions. Meanwhile, the UK has announced that it has frozen €583 billion in assets from Russian banks and businesses, some of which are partly state-owned, as well as €175 billion in assets from oligarchs and their family members.

Can the EU or Ukraine ever make use of these billion-dollar Russian assets that have been frozen?

Well, Russia has been trying hard to recover its foreign assets through legal actions but the fact that it has been held in so many jurisdictions makes it tough.

On the flip side, both Washington and Brussels have expressed support for using Russian assets frozen by sanctions to fund Ukraine’s resistance or reconstruction but doing so will take a very long time. 

In these hard times, where countries are stopping their trade with Russia, the corporates too are temporarily curtailing operations or pulling out entirely from Russia. It has become one of the many pressure points on Russia’s economy. 

Corporate action:

After more than 3 months of fighting in Ukraine, ordinary Russians have fewer options when they go shopping. All they see is empty shelves at supermarkets, the rationing of staples and shuttered stores. More than 1,000 international corporations, including Coca-Cola and Starbucks, have either discontinued or abandoned their operations in Russia, thus decoupling the country from the rest of the world. Some sided with concerns about the conflict and the safety of employees, while others left as the U.S. and its allies imposed a slew of sanctions that could make doing business in the country more difficult. One of the major problems these companies were facing included carrying out basic tasks like importing supplies or paying employees after several Russian banks were delisted from the global financial messaging system.

Jobs in Russia are also in jeopardy as a result of these retreats. So far, most of the companies that have pulled out, said that they shall continue paying their employees but it is unclear as to how long they will be able to last, so one can only wait and watch how things unfold.