Ongoing hostilities between Russia and Ukraine have resulted in spate of sanctions been imposed by several countries and the UN on Russia, Russian companies, and other specified individuals. Amongst other countries, key sanctions have been imposed by the EU, UK, USA, and the UN. The sanctions have squeezed the economic and financial activity within Russia, they have also adversely impacted India's trade with Russia. An immediate impact has been the increase in price of certain commodities such as oil & gas, coal, and shipping. This note details the sanctions imposed on Russia.

Key EU sanctions:

  • Ban on selective Russian banks to use SWIFT messaging system.
  • Ban on transactions with the Central Bank of Russian Federation.
  • Closing of airspace for Russian flights.
  • Prohibition to sell, supply, transfer or export Euro to Russia or to any natural or legal person.
  • Ban on the sale, supply, transfer or export to Russia of technologies in oil refining, maritime navigation, and radio communication, etc.
  • Stopped shares of Russian companies being listed on EU stock exchanges

Key USA sanctions:

  • Sanction imposing prohibition on transactions with the Central Bank of Russian Federation.
  • The US Department of the Treasury's Office of Foreign Assets Control (OFAC) imposed expansive economic sanctions targeting Russia's financial system, including all of Russia's largest financial institutions and the ability of state-owned and private entities to raise capital.
  • Ban on Russian aircraft from using and entering the US airspace.
  • The US Bureau of Industry and Security (BIS) issued new regulations for restricted access to US commodities, software, and technology.
  • Ban on all imports of Russian oil & gas and energy.
  • Ban on export, sale, and supply of US dollar banknotes from the US to Russia.

Key UK sanctions:

  • Sanctions against Rossiya Bank, IS Bank, General Bank, Promsvyazbank and the Black Sea Bank
  • Britain will freeze the assets of three wealthy individuals: Gennady Timchenko, Boris Rotenberg and Igor Rotenberg.
  • Sberbank, Russia's largest bank, is added to the sanctions list, although it is only blocked from correspondent banking (holding money on behalf of other banks) and clearing transactions in Pound Sterling.
  • British people cannot make transactions with the Central Bank of Russian Federation, its finance ministry, and its wealth fund(s). Any assets they hold in the UK will be frozen and the individuals concerned will be banned from travelling to the UK.
  • Britain has also threatened to cut off Russian companies' access to US Dollar and British Pound and blocking them from raising capital in London.

Key UN sanctions:

  • The UN adopted a resolution demanding that Russia immediately ends its military operations in Ukraine.

Impact of sanctions on key industry sectors in India:

The sanctions on Russia have direct impact on world economy, including India's trade with Russia. Following sectors have been particularly impacted:

  • Oil & gas: Global crude oil prices have demonstrated significant increase by approximately 40% since the RussiaUkraine hostilities began. This is quite worrisome for India, which imports 80% of its oil requirements. While Russia typically supplies only about 2-3% of India's import requirement, the Indian government is considering taking up Russian offer to buy crude oil and other commodities at a discount to reduce its rising energy bill. In fact, we understand that Indian Oil Corporation, one of India's largest oil companies, recently bought 3 million barrels of Russia crude for May delivery.
  • Coal: Global coal prices have significantly spiraled in the wake of hostilities between Russia and Ukraine. Russia is India's sixth largest supplier of coking and thermal coal.
  • Shipping: The Black Sea route has become unavailable due to blockage of shipping route and increased cost of insurance for vessels. The current hostility has triggered safe port, war risk and sanctions clauses of charterparties.

Conclusion:

The global economic outlook will remain uncertain and turbulent for some time.,. Rising crude oil and coal prices invariably result in a depreciated rupee, increased inflation and fiscal deficit, and a reduction in GDP growth. In light of the sanctions and in absence of Euro and USD for trade, the Indian Government, in an attempt to insulate itself from potential adverse consequences to the country's economy and assist continuity of trade between India and Russia, is considering various alternatives such as Rupee-Ruble trade arrangement and routing payments through banks in third countries where both Indian and Russian banks have presence.

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