In the wake of Russia’s invasion of Ukraine, the United States, the United Kingdom, the EU, Japan, Taiwan, New Zealand, Switzerland and Canada have all announced different sanctions against Russia. Imposing economic sanctions is often seen as an alternative to military intervention: sanctions cause economic damage and thus coerce the target into changing its objectionable course of action.
The most notable examples of these sanctions include the UK banning ships with 'any Russian connection' from entering its ports in the wake of the conflict in Ukraine whilst the London Stock Exchange has suspended trading in 27 companies with strong links to Russia, including the energy and banking firms Gazprom and Sberbank. Last week, the US and UK rolled out their latest restrictions against a handful of rich and powerful Russian oligarchs. Western governments say such people have profited from close ties to the Russian President; either by spending lavishly outside Russia, boosting local economies with property purchases and other investments.
Oligarchs
The U.S. put “blocking” sanctions on eight Russians with close ties to Putin and their families, essentially freezing them out of the U.S. financial system. In addition, the U.S. will impose visa restrictions on 19 Russian oligarchs and 47 of their family members and close associates. Recent research by campaign group Transparency International suggests £1.5bn worth of UK property has been bought by Russians accused of corruption or links to the Kremlin since 2016. Nearly £430m worth is in the City of Westminster, while £283m is in Kensington and Chelsea. The Liberal Democrats are therefore calling for oligarch-owned properties to be seized and turned into temporary accommodation for Ukrainian refugees. Meanwhile, the authorities in France and Germany have seized super yachts owned by Russian tycoons Igor Sechin and Alisher Usmanov.
Furthermore, the costs of corporate actions are rampant since more than $110 billion in Russia exposure announced by global companies, banks and investors. According to Reuters, Nike and IKEA shut down stores in Russia last Thursday, as trade restrictions and supply constraints added to political pressure for companies to stop business in Russia because of its invasion of Ukraine.
The effect of the sanctions:
The effectiveness of economic sanctions aimed at disrupting military intervention is questioned. However, it is clear that Russia is vulnerable to economic pressure: the UK imposed sanctions on Russia for its annexation of Crimea in 2014 and trade flows between Russia and the EU amounted to 22% of Russian GDP and 3% of EU GDP. In addition, Putin didn’t face internal opposition due to the 2014 sanctions because he framed his military action as support for the Russian-speaking minority in Crimea. Whilst it is clear most Russians are not in support of the war on Ukraine, it is still unclear as to whether these sanctions will bite.
Russia planned the invasion of Ukraine and expected western sanctions as a consequence of its military actions. Whilst the EU, US, UK, Japan and Canada are cutting off key Russian banks from the international Swift payment network (allowing the smooth and rapid transfer of money across borders), following the 2014 sanctions, Russia developed an alternative international payment platform: the System for Transfer of Financial Messages (SFPS) – essentially the Russian equivalent to SWIFT.
Commercial and Legal Implications:
Mikhail Fridman, a founder of Russia’s largest private bank (Alfa Bank), was sanctioned by the EU late Monday. Mr. Fridman said that he would contest the designation and that he isn’t politically or financially connected to Putin:
“It seems to me that we have done a lot of good things, invested in companies, created a lot of jobs,” Mr. Fridman said at a press conference from his private-equity firm’s office in London. “We will litigate to protect our reputation.”
On the issue of litigation, the UK government has suggested that city law firms and PR outfits working to stop Russian oligarchs like Mr. Fridman from being hit by sanctions could themselves be targeted by consequences. "The legal profession, everybody involved in assisting in those who wish to hide money in London and assisting corrupt oligarchs have been set on notice that their actions are under scrutiny," Johnson told parliament. In fact, the Foreign Office has revealed that it has been sent numerous legal letters by firms representing oligarchs, Russian state companies and banks seeking to avoid sanctions amid the Ukraine crisis.
Furthermore, many are concerned with whether Russia’s invasion of Ukraine will curtail existing gas flows into Europe. Unlike other European countries the UK does not rely on Russia for gas, but rather the North Sea and Norway. However, Russia’s attack on Ukraine could still lead to an increase in energy bills, as the UK’s gas prices are affected by global markets (Europe gets over 40% of its gas from Russia). However, the question of trade is of importance. According to the latest government data, Russia was the UK’s 19th largest trading partner over a 12-month period up until September 2021 - accounting for 1.3 per cent of total British trade. Furthermore, the Department for International Trade estimates the total trade in goods and services - exports plus imports - between the UK and Russia is £15.9billion a year; total UK imports from Russia amounted to £11.6bn last year - an increase of 43.6 per cent, or £3.5bn, compared to the year before.
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