Last week, officials from the United States, United Kingdom, France, Belgium and Germany met in Europe to finalise an extensive package of economic sanctions and export controls that Western countries may impose if Russia decides to invade Ukraine. Over the weekend, US President, Joe Biden said that he is now “convinced” Russian forces “intend to attack Ukraine in the coming week, in the coming days”.
This alert identifies some of the key Western prohibitions and restrictions under consideration and explains how their implementation could affect New Zealand businesses. We recommend that local businesses with interests in Russia, or who deal with Russian nationals or businesses, monitor developments closely. In particular, they should carefully consider how they are transferring money to/from Russia and how those arrangements could be modified at short notice, should that prove necessary.
Current sanctions
The United Nations (UN) has not imposed any sanctions in response to Russia’s recent provocations and there is no realistic prospect of UN sanctions being imposed in the future. This is because Russia is one of the five permanent members of the UN Security Council, so Russia would veto any effort to impose sanctions on the country.
In contrast, Russia has been sanctioned by Australia, Canada, the European Union (EU), France, Switzerland, the United Kingdom (UK), and the United States (US), among others, for its occupation of Ukrainian territory since 2014. A useful summary of current autonomous sanctions measures targeting Russia is available here. Those sanctions have escalated over time in response to a variety of Russian provocations, including terrorism, cyberattacks, chemical weapons attacks, elections interference, human rights violations, and support for the regimes of President Bashar al-Assad of Syria, President Nicolas Maduro of Venezuela and President Alexander Lukashenko of Belarus. Of note, the sanctions measures imposed to date have largely been designed to have a limited impact on ordinary Russians and Western economies, while exerting pressure on the Kremlin and Russia’s elite. If Russia invades Ukraine, this distinction will no longer be possible and further sanctions would undoubtedly have a much broader economic impact on Russia, causing more collateral damage in Western countries, including New Zealand.
Potential Western sanctions
While a range of Western governments are contemplating an extensive package of economic sanctions and export controls targeting Russia, it is the set of measures being considered by the Biden Administration and the US Congress, discussed below, that are likely to have the most significant implications for New Zealand businesses.
Potential Russian retaliatory measures
If Western governments impose further significant sanctions, the expectation is that Russia will respond in kind. One potential measure under consideration is that Russia may extend its current temporary, two-month export ban on ammonium nitrate. The international implications of this would be significant because Russia provides 60% of the world’s ammonium nitrate, which is a key component of fertiliser. New Zealand is not a major user of ammonium nitrate, but if the export ban were extended to include potassium fertiliser (one of New Zealand’s principal imports from Russia) significant supply restrictions and/or price increases could be expected.
Russia may also decide to extend its current ban on the import of agricultural products from countries that impose autonomous sanctions on Russia. New Zealand was exempt from the last wave of Western agricultural product bans that were imposed in 2014, and may remain exempt given the Government’s inability to impose autonomous sanctions in the absence of a UN resolution (given a lack of autonomous sanctions legislation in New Zealand). As a result, the key implications of any extensions of these bans may be new (albeit increasingly risky) export opportunities and heighted export prices for New Zealand’s agricultural exporters, although New Zealand, and New Zealand businesses, may come under pressure from allied nations not to do business with Russia in light of their collective efforts to sanction and isolate Russia.
