With the United States and Europe leading the way, countries are taking measures to isolate Russia from the global economy. Political leaders have announced financial restrictions and sanctions, as well as asset freezes. How can this situation impact international trade?

Russia's invasion of Ukraine resulted in artillery attacks, bombing of different military bases and cities, among other military actions aimed at weakening the country and reaching the city of Kyiv to subdue the current government. All under the pretext of freeing a certain part of the Ukrainian population from oppressive policies by President Volodymir Zelensky. 

In twenty-one days of war, different events have occurred related to the reactions of Western countries, the migration crisis that is breaking out in Europe and the repercussions that are beginning to be felt worldwide due to the high uncertainty of what the outcome of this conflict will be.

Major economic and financial events

At the global level, numerous countries have agreed to imposition of economic sanctions Russia in the wake of its aggression against Ukraine. Driven primarily by the United States and the European Union, actions are being taken on different fronts aimed at diminishing Russia's ability to continue the ongoing military campaign. The main measures are:

• Several Russian banks have been removed from SWIFT (the dominant payment system for interbank transactions).
•  Freezing the assets of the Central Bank of Russia, making it difficult for the country to liquidate the assets it currently holds.
• Freezing the assets of wealthy individuals or companies in their territories.
• Restrictions on exports of strategic goods for Russia, primarily technology that can support the ability to build weapons and refine oil.
•  Sanctions against Alexander Lukashenko, President of Belarus.
• Vladimir Putin signs decree banning taking more than $10.000 or its equivalent in other currencies out of the country.
•  Canada and the United States ban the import of Russian oil
• Russian ships banned from ports in Canada, Britain and New Zealand
• Countries considered tax havens order to stop transactions

The main impacts are beginning to be felt in the dynamics of international trade

Economic sanctions will have an impact primarily on international trade, since by restricting exports and imports to and from Russia, countries with which it maintains an important bilateral relationship, they may begin to be affected, not only through international price quotations, but also from the lower supply and demand for goods and services that this may imply.

Trade relations between countries in the region and Russia

*The percentages of exports and imports apply to the total of these for each of the countries.

Russia does not play a significant role as a trading partner in the region. Trade relations with Argentina, Chile and Uruguay show a net surplus, while Brazil, Colombia, El Salvador, Mexico, the Dominican Republic and Panama show a deficit. In general, exports or imports represent less than 2% of the total value of these.

However, since sanctions are having an impact on international price quotations and supply chains, the impacts will be felt more strongly in the markets.

Trade relations between countries in the region and Russia

Imports from Russia

Fertilizers are the main import product for countries in the region, where for countries such as Argentina, Brazil, Colombia, El Salvador and Uruguay they represent more than 50% of the total. In the case of Panama, imports of fuels and mineral oils stand out, representing 50% of total imports from Russia.

Among the imports from the Dominican Republic and Mexico, commodities and raw materials are mainly represented by copper, nickel, aluminum, wood and steel. Except in the case of Mexico, where the machinery and vehicles sector predominates, exports to Russia are mainly agricultural products for countries in the region.

Trade relations between countries in the region and Russia

Exports to Russia 

Markets

With the various sanctions imposed by Western countries and the measures taken by the Russian government in response, the main impacts are being seen in the international price quotes of commodities, the stock indices of Asia and the exchange rate of Russia and some countries in the region.

 Currencies such as the Colombian peso and the Dominican peso have shown a slight appreciation in the last 21 days, while the Russian ruble has depreciated by approximately 30%, reflecting the strong capital outflow that has been evident since Russia's formal invasion of Ukraine. This has even led the Russian government to take important measures such as raising interest rates and restricting personal transactions.

As for international commodity prices, wheat and natural gas have continued to rise significantly in response to the sanctions imposed. The price of oil, which in recent weeks was trading at its highest levels in the last 7 years, has been falling as countries begin to make decisions seeking to regulate supply.

Business reactions

Approximately 400 multilateral companies have announced plans to suspend or otherwise reduce their operations in Russia. Among them are representatives of all industries: 

• Major oil companies with important projects in the country such as Exxon, Shell and BP.
• Car brands like Volkswagen
• Major restaurant and food and beverage chains such as McDonalds, Starbucks, Coca Cola and Heineken.
•  Clothing and accessories stores such as ZARA, Mango, H&M, Adidas, Nike
• Services such as Disney+, Netflix, Instagram, Tik Tok and Facebook, among others, have been suspended.
• The Big Four accounting firms PwC, KPMG, Deloitte and EY have announced that they will no longer have associated companies.

 In addition to purely economic sanctions, the political stance of countries regarding the conflict has triggered the adoption of measures by private and public organizations that cover operational, business, sports and social aspects. Some of the most notable decisions are:

• UN General Assembly approves non-binding resolution condemning Russian aggression against Ukraine. The resolution was approved by 141 of the 193 UN member nations. Four Latin American countries abstained from voting: Bolivia, Cuba, El Salvador and Nicaragua.
• Russian President Vladimir Putin announces that he has alerted the country's nuclear forces in response to aggressive comments from NATO member countries.
• European Commission announces it will finance the purchase and delivery of weapons to Ukraine.
• German Chancellor Olaf Scholz announces an extraordinary 100.000 billion euro budget to modernise the German armed forces and the delivery of lethal defensive weapons to Ukraine
• Several countries have closed their airspace to all Russian aircraft, whether military, commercial or private. Russia has responded reciprocally to the measure.
• Russian government-controlled media are banned in the European Union. State media such as Russia Today y Sputnik, together with its subsidiaries, will no longer be able to operate as a source of information.
• China has called for respect for its “legitimate interests” and reiterated that it is “firmly” opposed to any type of “unilateral sanctions” against Russia, a country with which it will maintain economic exchanges.
• Delegations from Ukraine and Russia have held several meetings, which are considered attempts at negotiation. The last one took place on March 16, with some progress on 15 points of negotiation, including a ceasefire if the city of Kyiv declares neutrality.

According to the UN, 12 million people in Ukraine will need assistance, while more than four million Ukrainian refugees could need protection in neighbouring countries in the coming months.  As of March 16, the UN reports that there are an estimated 4.000.000 refugees.

Impacts on the insurance sector

The conflict between Russia and Ukraine could have effects on supply chains, commodity prices, inflation and interest rates. In general, solutions where claims are tied to the cost of inputs (such as in the case of cars and health) could experience an increase in the severity of claims even greater than what they have experienced with the disruption in supply chains.

Compliance solutions, engineering, among others, could also be affected by the increase in the cost of construction materials such as aluminum and steel as a result of higher costs to produce them due to the increase in the cost of energy and the worsening situation in the logistics chains.

The general increase in inflation and interest rates can also generate a slowdown in the economy, impacting the company's growth in different solutions.