New Era Of Trade Wars Between Russia And The West.

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As the rebellion in Eastern Ukraine seems to be collapsing, the broader geopolitical environment is becoming more complex. From a procurement perspective, those with a big stake in the commercial outcome of the situation are likely to find consistent challenges in the coming years.

Following the developments earlier in the summer, Europe and the US have been attempting to ’correct’ Russian behaviour in Ukraine by applying steadily greater economic costs; Russia is responding by massing more troops on the border.

Although the annexation of Crimea seems more or less accepted by the international community, new Russian actions have delivered harsher penalties. This include the alleged supplying of rebels with arms and men, shelling of Ukrainian ground from Russia, abduction of a Ukrainian pilot to Russian territory and possible connection to the downing of flight MH17.

The West subsequently applied hard-hitting sanctions affecting the Russian finance and oil sectors – although crucially not gas. In response, Russia has been promising a range of punitive measures. The most headline-grabbing measure promised a ban on Polish apples. But there are a range of sanctions which may affect suppliers in Russia. None is more threatening that the total banning on management consultancy and audit firms based from ’aggressor states’.

Richard Mallinson, geopolitical analyst at Energy Aspects, notes, "there’s a game of chicken going on between Russia and the West." Pessimists fear a whole range of additional measures to be unveiled in the future. For businesses, this will make planning in the coming years extremely difficult.

Recently, there are reports on Russia banning European carriers using Russian airspace to access Asia, US poultry, meanwhile, may be prohibited for Russian import and we may even see bans on American bourbon.

As the Kiev-backed forces seem to be getting the upper hand in the conflict, it appears that the attention of the global community will move from the bloodshed in the Dombass to a round of fractious trade wars.

Intelligence indicates that 40,000 Russian soldiers have been reposted to the borders. Even if the separatists are defeated on the battlefield, Mallinson believes that "Russia will continue to ferment some sort of unrest in the Ukraine, even if they rebels are defeated." This may include returning to the ceasing of gas supplies, as we have seen previously.

Russia twice shut-down the pipes which supplied Ukraine with gas in the recent past. Although the conflict has dominated the reporting, there are still unresolved issues about Ukraine’s unpaid gas-bills and the pricing. Kiev had received favourable rates, in return to leasing the port of Sebastopol to the Russian fleet. After the annexation of the Crimean peninsula, Russia claims the agreement is void.

This winter may be one in which energy supplies lead the European policy debate. Before then, determining exposure to a complex conflict of sanctions and counter-sanctions will be a primary occupation.

Jonathan Webb
Posted by Jonathan Webb

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