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Over the last few days, the response of countries and companies
to the Russian aggression on Ukraine is widely discussed. Economic
sanctions on Russia imposed by global players, such as the United
States (US), the European Union (EU), Japan, and South Korea are
already severe and are expected to be augmented presently. In
comparison to sanctions imposed after the Crimea invasion in 2014,
which concerned primarily the energy sector, technology transfer,
and financial measures (e.g., asset freezing), the recent response
is likely to impact international trade of the Russian Federation
even heavier.
Economic sanctions will impact international trade in Russia
significantly
Due to the Russia-Ukraine war, the Russian Federation is facing
tremendous multi-level economic sanctions. Some of them, such as
suspension of serving Russian markets by shipping companies,
immediate exit from the market, or refusal to sell Russian
products, together with customers' boycotts are seen for the first
time on such scale.
In the short and medium-term, we expect Russian exports and
imports to significantly decrease, the fall however will differ
depending on the industry and transport mode. We believe that the
duration and extent of the drop in Russian international trade will
not be lower than in the case of the Crimea invasion in 2014. The
incident amounted to 40% drop in exports and the decay of the shock
took about five years.
In the long-term, we expect that the Russian economy can
strengthen the links with mainland China, its largest trade
partner. On the other hand, we believe that mainland China is not
able to absorb the whole sanctions-related trade shift.
Overview of the Russian international trade
Typically for the natural resource-abundant country, over the
last years, Russia has a significant trade surplus, ranging between
10-34% in the 2002-2021 period. Both Russian exports and imports
showed an increasing trend before the 2008 financial crisis
followed by a volatile, horizontal trend afterward, with the
highest value in 2013. In line with recent GTAS Forecasting data,
in 2021 Russia was the 12th largest exporter and 21st importer in
the world.
From the commodity perspective, Russian exports are generally
dependent on natural resources. In 2021, the most important
exported products were 'crude oil' (26% of the total value of
exports) and 'refined petroleum products' (15% of the total value
of exports). These commodities are followed by 'precious metals',
'coal and coke', or 'natural gas, petroleum gases, and gaseous
hydrocarbons'. Listed above, the top 5 commodities were responsible
for over half of total Russian exports in 2021.
At the global level, Russia was the largest exporter of 'wheat',
'fertilizers', or 'basic iron and steel' in 2021. At the same time,
Russia is the second-largest exporter of 'crude oil', 'refined
petroleum products' or 'mineral fuels, mineral oils and products of
their distillation; bituminous substances; mineral waxes, n.e.s.',
following Saudi Arabia, the US, and Netherlands respectively.
Finally, Russia is the third-largest exporter of 'coal and coke'
and fourth of 'aluminum and articles thereof'.
The importance of listed commodities is revealed in the Global
Trade Analytics Suite (GTAS) Forecasting Export Specialization
Dashboard, which is available for all the subscribed GTAS Forecasting users. Once
again, the most important product groups - also in terms of real
value (with the highest share in total trade of certain commodities
and revealed comparative advantage index - RCA) are 'crude oil',
'refined petroleum products', 'natural gas, petroleum gases, and
gaseous hydrocarbons'. and 'coal and coke'.
From the transport mode perspective, the majority of Russian
exports are transported by sea and land transport (pipelines
included). In 2021 over 57% of total exports were related to
seaborne trade, 36% was transported by land. The remaining 6% is
transported by air. This proportion is generally constant over the
last years.
From the geographic perspective, the top 10 trading partners of
Russia are mainland China (USD 68 Billion), Netherlands (USD 42
Billion), Germany (USD 30 Billion), Turkey (USD 27 Billion),
Belarus (USD 23 Billion), UK (USD 22 Billion), Italy (USD 19
Billion), Kazakhstan (USD 18 Billion), the US (USD 17 Billion), and
South Korea (USD 17 Billion), together responsible for 58% of
exports from Russia in 2021.
As for Russian imports, again the main trade partners are
mainland China (USD 73 Billion, 25% of total), Germany, the US,
Belarus, South Korea, France, Italy, Japan, Kazakhstan, and Turkey.
In the case of imports, Russian trade is even more concentrated in
the top 10, which amounts to 66% of total imports in 2021 in line
with GTAS data.
Historical volatility to sanctions - revisiting impact of
Crimea invasion
In comparison to the Crimea invasion, the impact of sanctions on
Russia's international trade is expected to be significantly
heavier. The response to the Russian invasion of Crimea in 2014 was
an industry or individually targeted and limited primarily to three
areas - technology transfer, energy sector, and financial
sanctions, which resulted in deteriorating ratings, capital
outflow, and strong currency depreciation. The above, together with
decreasing prices of crude oil among others induced a financial
crisis in Russia. The crisis transferred to the balance of payment,
with the highest exports dropping in January 2015 exceeding 40%
year-to-year. From the trade perspective, the consequences of the
Russian crisis held back the return of the value of exports until
2020, which means that it affected trade for the next five
years.
Clearly, this time, international trade in Russia will be
affected on several parallel levels. First of all, trade
restrictions for several commodities will certainly affect Russian
trade directly. On the import side, sanctions concern primarily
high technology and dual-use goods or technology transfer,
especially in the energy, transportation, space, and aviation
sectors. On the export side, applied measures are to a large extent
company oriented. For example, the EU is blocked from doing
business with Kamaz (trucks) Russian Railways, Sovcomflot
(shipping), or United Shipbuilding Corporation (shipbuilding) among
others.
The country-level measures were reinforced by firm-level
measures, related to both, the resignation of doing business in
Russian companies, serving the Russian market, or foreign direct
investment (FDI) withdrawal. For example, the largest aircraft
producers - Boeing, Airbus, and Embraer - announced to suspend the
Russian market from new aircraft and its parts. Similar decisions
have been made by Intel, AMD, and Lenovo in the computer industry,
Volkswagen, General Motors, and Volvo in the automotive sector.
Additionally, Daimler announced cutting its business linkages with
Kamaz. Several oil companies, such as British Petroleum, Shell, and
Exxon Mobile decided to exit operations in Russia or sell their
subsidiaries. Several European retailers announced the suspension
of Russian products' selling (Rossman, Netto). The list of
withdrawing companies constantly extends, containing a wide range
of industries, including entertainment (Disney, Spotify), culture,
and sports events (Eurovision, Paralympics, FIFA, UEFA).
Moreover, it is observed that strong depreciation (nearly 30% -
from 83.52 RUB/USD on 27 February 2022 to 108.51 RUB/USD on 1 March
2022) is expected to hit Russian international trade directly,
similarly to the Crimea invasion. Additionally, as a result, the
interest rate has been doubled by the central bank to 20%, impeding
access to credit, which can impact trade indirectly.
Furthermore, financial sanctions, including disconnection from
the Society of Worldwide Interbank Financial Communication (SWIFT)
system, can interfere with international trade-related payments,
which in turn can raise trade uncertainty and disturb deliveries,
negatively affecting both Russian exports and imports.
Lastly, Russian goods and services are expected to be boycotted
by customers around the world, which primarily concerns fast-moving
consumer goods (FMCG). The extent of the impact is still unknown,
as it is the first time we have observed such customer-level
sanctions on such a scale.
The above measures will be strengthened by the announced
transport and logistics impediments. As of 2 March 2022,, Maersk,
MSC, CMA CGM, and Hapag Lloyd announced a temporary suspension of
booking to and from Russia. On the other hand, airborne trade will
be certainly decreased due to closing of airspace for Russian
airlines in the EU, the US, Canada, and others.
Short and medium-term implications of economic sanctions for
Russian international trade
Taking the above into consideration, the overall impact of the
Russian aggression on Ukraine is complex, especially since some
forms of sanctions, such as broadly announced refusals to serve the
Russian market or customers' boycotts have been observed for the
first time on such a scale. It is extremely difficult to estimate
quantitative implications at this point due to the lack of recent
data. This situation can change however with initial trade data in
the forthcoming weeks.
Clearly, the drop in trade of Russia - both, imports and exports
- has the potential to exceed the fall attributed to the 2014/2015
crisis. Namely, in the short-term, the decrease of international
trade of the Russian Federation may significantly exceed 40%.
At the same time, the duration of all combined sanctions and
their implications for international trade in Russia is unknown and
hard to predict. We believe, however, that there are no reasons to
assume that the return to pre-war values could be faster than in
the case of the Crimea invasion, which lasted approximately 5
years.
It should be underlined, that volatility of trade can differ
from industry to industry. Clearly, in terms of Russian imports,
high-technology goods trade will decrease in line with imposed
sanctions to the largest extent. From the export side, natural
resources are expected to show the largest resilience due to high
dependency on crude oil and natural gas in trade partners'
economies. On the other hand, it can quickly change as already some
premises of self-sanctioning are observed.
On the other hand, trade distortions will differ depending on
the transport modes. Due to the suspension of serving of Russian
ports and closing the airspace for Russian airlines, we believe
that seaborne and airborne trade will suffer the most, while land
transport will be hit to a lesser extent.
Long-term implications of international trade sanctions in
Russia
The Russia-Ukraine war is likely to have long-term consequences.
First of all, if sanctions of Western countries will remain imposed
for a while, the Russian economy may divert faster towards mainland
China - the largest trade partner of the Russian Federation, which
hasn't condemned the aggression on Ukraine so far. Such a scenario
can be considered as mutually beneficial for both economies and
might further reinforce the Russia-China trade relations. This is
due to mainland China, to a large extent, is dependent on imports
of natural resources which Russia has in abundance. On the
contrary, it should be highlighted, that mainland China's economy
is unable to absorb whole exports shifted from the countries
imposing sanctions. Thus, only partial adjustment is expected even
in the long-term.
Secondly, we expect that the current situation in Ukraine may
force European countries to diversify imports of natural resources
as a substitute for Russian commodities. The future of European
supply from the Russian Federation is clearly uncertain (e.g., Nord
Stream 2 AG declaring bankruptcy) from the business point of view
as well as counter-sanctions from Russia could be expected.
Finally, we want to highlight that the overall effect of the
invasion on Ukraine on the international trade of Russia - both
short and long-term - will be significantly higher than any
previous assumptions which will be reflected in GTAS Forecasting
projections in our next forecasts release.