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Russia and Ukraine Part 2

At the time these words are being written, the open war Russia has been waging upon Ukraine has been going on for 21 days and as such, does not appear to have an end anywhere on the horizon. As it has escalated, trade across the world has become affected. At first, only local trading was affected, but as the war has deepened, disruptions have snow-balled and started to touch regions further afield. Following on from the first article and Part One, this article continues to look at the broadening issues being generated by Russia’s invasion of Ukraine…

Trade Flows

As set out in part one, the war on Ukraine by Russia and the resultant Russian sanctions have started to have an impact on the flow of trade around the world. As discussed by Chief Economic Analyst for Trade Data Monitor John W. Miller for Trade Finance Global, the flow of trade globally has disrupted commodities ranging from wood to oil to diamonds, and even to COVID-19 vaccines. Indeed, more widely, Global Trade Magazine sets out five ways in which the war in Ukraine will change the world’s economy. These are energy security and renewable energy (and more pertinent to this article), global defense spending, price inflation of wheat and foodstuffs, cybersecurity and information warfare, and, a more emboldened and united EU.

The last point is not a surprising one since Europe still receives much of its gas from Russia. Europe (and to a lesser degree the US) will need to establish a realignment of their energy sources going into the future. For the US, a significant proportion of their energy sources come from external and unstable providers. And with the invasion of Russian forces into Ukraine, the EU has become more geopolitically in sync and there exists the possibility it will manifest itself through more aggressive trade negotiations and dealings.

Russia’s invasion too could impose added pressure on businesses through ESG requirements: for most countries, it will no longer be considered acceptable to be dealing either with the Russian government, or perhaps any businesses that are linked to, or in business with, the Russian government.

Before the fighting began, Russia and Ukraine accounted for around 30% of the global wheat trade. As the war prolongs and disruption to trade grows, dependent countries will be forced to seek new sources of such commodities. Similar materials expected to be affected are sunflower oil and corn (with the outside chance that even further commodities will suffer).


Figure 1 shows those countries that qualify as the most important partners to which Russia exports its oil. Shown in billions of dollars (trade value in 2020), China is by far its most important single receiver with more than double the exports of the next most important – the Netherlands. However, grouping all the European countries together, their dependence on Russian oil begins to dwarf that of China.

Where the 2020 trade value for China was $23.77 billion, European countries accounted for a combined $33.53 billion. What this will mean for Russia - and the Russian people – as oil export partners turn their back on the country is an ominous prospect. In essence, the Russian economy has outwardly orientated itself toward the production of oil and gas, it is for that reason that sanctions will strike at global fuel prices. To apply pressure financially where it hurts Russia means having to endure some fiscal discomfort until such time as new energy sources are found, or the Russian government is brought to heal (or the Ukrainians manage to defeat their assailants).

Finance in Fossil Fuels

As expressed by Trade Finance Global, trade-in petrol and gas requires huge amounts of capital investment in order to search for raw materials, extract it, transport it, and to process and refine them using various technologies.

What this tends to lead to is highly complex and customized financial packages, provided by financiers to their clients which is invariably structured. Clients in turn tend to be large corporations or financial institutions. Their size, their complexity, and their financial requirements specifically in regard to fossil fuel trading mean that their needs are specific, specialized, and make for a whole unique arm of the trade finance sector.

As sanctions take effect against Russia, and in particular against its oil and gas exports, those large corporates and institutions will be casting around to identify new sources of raw material and this will potentially lead to gaps and disruptions in the financing of trade.

On 17th March 2022, the heads of a number of international financial institutions made a joint statement regarding the unfolding Ukrainian crisis. The heads consisted of the President of the European Bank of Reconstruction and Development (EBRD), the President of the European Investment Bank, (EIB), the Governor of the Council of the Europe Development Bank (CEB), the Managing Director of the International Monetary Fund (IMF), and the President of the World Bank Group (WBG). Within it, the EBRD, in particular, announced a Resilience Package sized at least initially to the tune of EUR 2 billion that is planned to, amongst other things, provide a program covering areas of ‘energy security, nuclear safety, municipal services, and trade finance support and liquidity for SMEs,’ in Ukraine and its neighboring countries. The WBG also pledged to continue to provide trade finance in and from the region to support the private sector. It is hoped then, that these measures will go some way to offsetting the disruptions that are occurring and are anticipated in the wake of the conflict.


Russia does have other export strengths up its sleeve. As pointed out by Miller, in 2021, it was the primary exporter of fertilizers in the world: worth $12.5 billion. The biggest buyers were Brazil, then the US, then China, and then Germany. Russia exported nearly $12 billion of wood in 2021 with its top customer being China, followed by Finland, Japan, Uzbekistan,

and then the US. Diamonds and other precious stones are Russia’s third-highest export commodity and its top three buyers in 2021 were the UK, the US, and Belgium regard to trade, perhaps one of the most provocative aspects to come out of the conflict is how it might inspire a new China-driven trade bloc (covered by Reuters). As such, Beijing has remained less committed to condemning Vladimir Putin’s invasion of Ukraine, and just before the initial invasion originally took place, Xi Jinping – the Chinese President – and Putin declared a ‘no limits’ partnership and with promises to work more jointly against the west.

This is in light of Russian-Sino trade in 2021 jumping 35% to around $147 billion. As the west sanctions Russia and makes attempts to isolate it from the global economy, an obvious ally and alternative for Putin are to turn to the east and the powerhouse there which is China. Clearly, should this relationship step up, the impact of sanctions on Russia will be more dilute and their success a lot less certain.


Nu-Credits is a trade finance market place makes trade finance accessible to credit-worthy SMEs by connecting them to global lenders. We provide blockchain infrastructure and integrated data solutions to assist lenders in underwriting trade finance credits to SMEs

Nu-credits differentiates itself by addressing major pain points in the trade finance industry through its blockchain-enabled platforms such as credit risk management, document collection process, technology adoption, business capacity, client engagement, and external environment instability.

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