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Russia and Ukraine Part 1

At the end of February 2022, Russia launched a broad scale invasion of Ukraine, one of its immediate international neighbors to the southwest. It is the latest culmination of a major escalation of hostilities between the countries that began in 2014. Some quarters categorize the invasion as the largest conventional military operation in Europe since the end of the Second World War… And this is obviously having an impact on international trade…

Annexation and Invasion

On 24th February, Vladimir Putin sent Russian forces into the Donbas region of Ukraine that was being held by rebels and that he ‘thought’ was, therefore, independent of the Ukrainian state (reported by the BBC). Mr. Putin has justified his actions by saying that genocide was being committed there.

Currently, there has been no evidence of this. It seems the real reason for Russia’s invasion is due mostly in part to the increasingly western and European stance that Ukraine is adopting in its political persuasions. Where once Ukraine was part of the 15 region-strong United Socialist Soviet Republic, it now struggles for autonomy from its superpower neighbor. The now open war existing between Russia and Ukraine saw its seeds being sewn in 2014 when Russia annexed Crimea despite assurances from

the Russians – and other countries – that their newly found independence (having emerged from the dissolution of the USSR in 1991) would be secure. Ultimately, Russian moves to re-absorb Ukraine have been built on fallacies of the danger and threats of NATO, threats that exist only to vindicate Vladimir Putin’s aggressive actions.


As a means by which to influence the Russian Government and Vladimir Putin, a clutch of nations has imposed sanctions on the Russian economy (and major players within it or connected to it).

With time and severity, and as erosion accumulates of the financial welfare of Russia and some of its influential citizens, it is hoped war will be made a less attractive prospect both for the Russian populace as conditions become more austere, and therefore also for the Russian leader himself. Figure 1 shows those entities that have seen sanctions thus far, although the chart is not necessarily exhaustive since the situation is changing regularly (data from the Guardian and the BBC). Political and financial sanctions against government-based entities have been manifestly predictable: targeting the Russian Finance Ministry, Central Bank, and National Wealth Fund for example.

Supplemental to this is the focus on Government officials such as Putin himself, Sergei Shoigu (Minister of Defence), Alexander Bortnikov (Director of the FSB), and Valery Gerasimov (Chief of the General Staff), and Sergei Lavrov (Foreign Minister). Sberbank is one of Russia’s top financial institutions, is state-owned, and is also facing sanctions from the international community.

This is especially interesting as the bank itself was recently given an award for Best Use of Artificial Intelligence in Trade Finance by Global Finance Magazine (and covered in another article by Nu-Credits). In 2014 it was the largest bank in Russia and also Eastern Europe, it was the third-largest in Europe, and ranked as 60th among the world’s largest banks assets-wise. How it will now fare in the shadow of Russia’s invasion is difficult to assess.

It might be argued the other entities facing sanctions are more subjective. One of the highest profile – at least in the UK – has been against that of Billionaire Roman Abramovich, chiefly known for his ownership of Chelsea Football Club.

As a result of his links to the Kremlin, Abramovich is selling the club and plans to donate all the net profits “for the benefit of all the victims of the war in Ukraine” (once again, as reported on by The Guardian). Some quarters have commented that Abramovich’s words are sufficiently vague so as to identify with Russian antagonists and their families as well as that of Ukrainian. Either way, it is thought the asking price for the club will start at £3 billion.

Materials and Money

In the wake of the invasion, trade markets and paths of supply are becoming increasingly compromised. In particular, raw materials and other commodities have suffered. At the onset of the invasion, Liquified Natural Gas (LNG) offers were abruptly paused and trade finance in raw materials wound down (reported by Bloomberg).

Wheat sales in the region of the Black Sea froze and it has been around that area that much of the disruption in trade has set in (especially materials such as palladium, oil, and wheat, and it is believed a major oil supply disturbance is possible). The cost of shipping has risen sharply too. Investors have been relieving themselves of Russian-linked commodities assets.

In particular, Societe Generale and Credit Suisse Group AG have stopped providing finance for the flow of Russian materials, and ING Groep NV and Rabobank have restricted trade financing on deals concerned with the movement of commodities from Russia and Ukraine. Even some Chinese financial entities have been “pulling back”.

As time and war evolve, insurers have become less and less willing to cover vessels in the Black Sea and premiums have risen. Various futures too have been impacted. In Chicago, wheat jumped by 8.6%, the largest leap in a day in 11 years. In Paris wheat saw a similar 8.9% rise (corn climbed 5.3% and soybeans 3.3% apparently).

Some positives may have emerged too, at least in the short term. Initial wariness in dealing with Russian oil supplies – in the wake of the invasion – has a relaxed somewhat. PKN Orlen and Trafigura Group have since entered into deals for Urals crude, while traders have seen an increase in purchasing. The market remains anaemic, however, and how long any positives might last is anyone’s guess.

In yet another impact, Norway has started to remove assets linked to Russia from its sovereign wealth fund, worth $1.3 trillion. Equity trading in Moscow itself has diminished, although this perhaps goes without saying. Further still, trading had slumped on MMC Norilisk Nickel PJSC by 58% in London at one point.

MMC is Russia’s largest metals and mining company. Some sanction exemptions have indeed been put in place to offset the ones meant to take a toll on Russian financials. These tend to be for Russian raw material commodities but experts and operators in the industry do not anticipate this will last. In times of war, few things seem to.

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