With Russia's invasion of Ukraine now entering its seventh week, new Western sanctions continue to be added and the effects of the conflict on trade – Russian and global – continue to evolve. Here we round up eight developments in the past week.
1. Russia’s grey market to flourish
Russia is looking to the grey economy to supply goods that are in short supply due to Western sanctions.
Its prime minister Mikhail Mishustin has approved “parallel imports” as part of a package of support for small and medium-sized businesses in Russia.
Retailers will be allowed to import goods without a trademark owner’s permission, reports the BBC.
Fortune likens the move to “legalising Russia’s bootleg economy” as the country faced inflation of 15.7% in March and its deepest economic crisis in more than two decades, Reuters reports.
2. More sanctions on their way
The UK government has expanded its sanctions against Russia to 14 more people and organisations principally involved with information and media.
The new measures, unveiled by foreign secretary Liz Truss this week, are aimed at countering the “torrent of lies” from Russian media about the invasion of Ukraine, reports the Guardian.
Australia has announced it is applying an additional tariff of 35% for all imports from Russia and Belarus and withdrawing Most Favoured Nation trading status.
Japan has also brought new sanctions to bear on Russia, banning the export of high-end cars and other luxury goods, Reuters reports.
The partial ban on Russia-bound auto items account for more than half of Japan's exports to Russia and take effect from 5 April. It will span 19 categories, from cars to jewellery, watches, cosmetics, liquor and art.
3. Hit to global trade volumes
Sanctions are expected to decelerate economic growth, particularly in Europe, according to research by Paris-headquartered Allianz Trade, reports GTR Review.
Taken alongside disruptions to global supply chains and high commodity prices, the report says trade faces a “double whammy” of lower volumes and higher costs.
It said trade volumes will grow just 4% this year – 2% lower than its forecasts before the war, although the overall value of that trade to increase by nearly 11%.
Although Russia has a relatively modest economy given its size and population, it punches above its weight due to the importance of its commodities exports, reports Deloitte.
Higher global commodity prices, if sustained or exacerbated, will likely cause accelerated and prolonged high inflation in many countries, especially in Europe. Higher commodity prices can also weaken economic growth.
4. Opportunity for India
India has resisted global calls to distance itself from Russia, which is a trade ally. According to Reuters, Russian foreign minister Sergei Lavrov flew to India this week at the same time as Liz Truss.
Truss took the opportunity to remind India that oil and gas sales were fuelling Russia’s war effort. However, India external affairs minister Dr S Jaishankar defended his country’s right to buy discounted oil and said the West had increased its purchases from Russia, reports the Guardian.
The Times of India reports that India is targeting countries such as Egypt that depend on Russian and Ukrainian wheat and is looking to at least double its grain exports.
India has identified at least nine markets for wheat, with Egypt the largest which had imported 13m tonnes. India is looking to supply two million tonnes. Other markets include Nigeria, Thailand, Vietnam and Turkey.
5. Trade is political
Power Technology examined the comparative reliance of different economies on Russian trade and found a relationship between those countries most exposed to Russia and their willingness to back UN condemnation of Russian aggression.
Countries which were the largest absolute importers of Russian goods, including the UK, Turkey, Germany and the US, did back the UN condemnation.
Those who are more reliant on Russia for their imports were more likely to abstain or vote against the motion, such as Belarus, which receives almost half of its imports from Russia, Kazakhstan, Armenia and Kyrgyzstan.
6. Supply chains adapt
According to an article in Vox EU, there is evidence that global supply chains adapt relatively quickly to economic disruptions from civil conflicts, although it differs by sector.
Its research found that supply chains in agricultural goods and the mining sector relocate more quickly than those in the manufacturing sector which seem to be more hesitant to relocate. Trade in fuel is most resistant to change, the writers said.
Aljazeera reports that sanctions against Russia are reorganising global trade along political lines, defying geography and efficiency.
Embargoes on Russian oil has created both a drop in real demand for the product – and a psychological aversion to it.
“There is a potential stigma associated with Russian trades,” said a financial officer at a Piraeus-based tanker operator, speaking on condition of anonymity. “Despite some of these trades still being legal, owners might not want to associate themselves. They might be asked by American oil companies if their vessels have performed recent Russian trades, and this could create a headache. Owners would rather avoid it.”
Countries are having to source some commodities from far-flung markets. Ziad Nakhleh, CEO at TEO Shipping, which operates dry bulkers, said his company is shipping coal from Australia to Europe.
7. The dollar is less mighty
The pre-eminence of the dollar as the global currency of choice is threatened by Russia sanctions as a more fragmented international monetary system evolves, an IMF official has warned the FT.
“We are already seeing that with some countries renegotiating the currency in which they get paid for trade,” said Gita Gopinath, IMF’s first deputy managing director
The dollar’s share of international reserves had fallen from 70% to 60% over the past two decades, with the emergence of other trading currencies, led by the Australian dollar. About a quarter of the decline in the dollar’s share can be accounted for by greater use of the Chinese renminbi, she said.
From today, Russia is also demanding the Europe pays its £350m daily gas bill in roubles, reports the FT.
8. China plays its own game
Bloomberg reports that China has rejected speculation it might try to circumvent international sanctions against Russia, complaining that the measures have damaged its trade relations.
Chinese companies and government officials are looking to comply with sanctions. However, requests by Chinese diplomats in Washington for granular details on the sanctions have made them wary that China may simply be looking for loopholes to help Russia, according to people familiar with the situation.
In virtual talks today (Friday 1 April), the EU is to press China on its position in the conflict, reports Euractiv. Brussels is keen for assurances from Beijing that it will neither supply Russia with arms nor help Moscow circumvent Western sanctions.
