One Year After Russia’s Invasion of Ukraine
Just over one year ago as of the time of writing, on February 24, 2022, Russia shocked the world by fully invading its western neighbor, Ukraine, after having spent the previous eight years occupying the Crimean Peninsula and causing a civil upset in the Donbas and Luhansk regions of the country. Proclaimed as a “special military operation” to “liberate” Ukraine from “bad actors,” it has become exceedingly clear that Russian President Vladimir Putin’s motives are bad faith in nature.
Since then, the United States, European Union, United Kingdom, and other allied countries have enacted sweeping sanctions and restrictions on trade and business with Russia and Russian-owned companies, such as restrictions on new investments in Russia; restrictions on Russian oil exports; U.S. imports of gold, diamonds, seafood, and alcohol; exports of U.S. luxury goods and USD-backed banknotes to Russia; and specific restrictions and sanctions on high-ranking officials of both the Russian government and its business elites, to name a few key examples.
What effects have sanctions had on Russia?
The sanctions regimes passed by the world writ large have not gone unnoticed. The Russian economy’s gross domestic product (GDP) has seen a massive percentile drop since its invasion of Ukraine, rivaling and beating the contraction caused by COVID-19:
Source: Created by the Congressional Research Service from IMF World Economic Outlook Database Information (available here).
Beyond a GDP line graph, the Congressional Research Service has noted that Russia’s financial sector is facing hundreds of billions of USD in losses; Russian factories have outright suspended production due to export restrictions causing a failure of procuring foreign-made components; and key foreign companies have exited the Russian market.
Furthermore, Russia is now facing a “brain drain” due to political ramifications domestically. It is estimated that 500,000 to 1 million Russian citizens have emigrated from the country since the start of the war, seeking shelter in Western-friendly European countries from the Russian military draft and the grim economic conditions the country is facing. This will only further exacerbate the issues Russia is facing.
What comes next in the Biden Administration’s toolbox?
As time presses onward and the war continues, the United States Department of Treasury’s Office of Foreign Assets Control (OFAC) is now signaling that it is expanding sanctions to cover Russian metallurgy and mining sectors, and will further expand export restrictions of U.S.-origin goods to cover certain consumer goods that contain important computer chips as Russia repurposes the chips for military use.
These restrictions will play a key role in the Biden administration’s approach to restricting Russia and its military from access to key components in war, such as computer chips or much-needed revenues from oil exports. Further, this approach aims to target sanctions evasion operations conducted by Russia’s military intelligence.
What does this mean for my company?
When dealing with international business, it is imperative to remain up to date with the constantly evolving sanctions regimes around the world. Whether it be OFAC-issued or EU-issued, these sanctions play a key role in determining where best to source your goods in the face of global market instability.
As noted in our previous article on this topic, we predicted that tariffs on Russian-made goods would increase exponentially should Russia’s most favored nation status be revoked. While this has held true generally, we could not have predicted the extent that OFAC and other global regulators would crack down on the importation of Russian consumer goods in general. In this regard, your company has likely already faced issues if you export goods to or import goods from Russia.
Here at Givens & Johnston, we are well-positioned and uniquely experienced to help importers and exporters alike grapple with governmental restrictions on their businesses. As sanctions and restrictions increase as the war drags on, the need for compliance and legal departments to ensure their companies are following the numerous regulations is paramount to ensuring your business operations are not disrupted by a customs seizure or fines and penalties.
Contact us today to see how we can help streamline your supply chains!