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Russia-Ukraine tensions: the sanctions landscape and emerging developments

14 February 2022

The international sanctions landscape is constantly shifting in response to geopolitical events.  Here, we provide a high level overview of the sanctions landscape pertaining to Russia and a summary of possible anticipated changes to the existing restrictions.

As fears of an invasion of Ukraine by Russia mount, it is looking increasingly likely that new packages of sanctions against Russia will be introduced by the UK, EU and US.

Existing sanctions

Russia is already the subject of sanctions regimes imposed by the UK, EU and US in reaction to the destabilisation of Ukraine and the annexation of Crimea. The regimes are notoriously complex and difficult to navigate.

Broadly, the sanctions consist of the following:

  • Sanctions against named individuals and entities (e.g. oligarchs, financial institutions, other Russian entities), including asset freezes and travel bans;
  • So-called 'sectoral' sanctions, i.e. restrictions on specific types of dealings, relating mainly to the financial, energy and defence sectors;
  • Restrictions on trade, such as the export to Russia of technology needed for oil exploration; and
  • Bans on trade with and investment in Crimea.

There are presently differences between the three regimes. Although the EU and US regimes were initially relatively aligned, the US has gradually extended the scope of its sanctions against Russia since they were first implemented in 2014. The EU regime used to be applicable in the UK through EU law. However, since the UK's withdrawal from the EU, the UK has had the ability to implement its own sanctions without EU Member State agreement. The UK's sanctions against Russia currently broadly mirror the EU regime, albeit with some differences. The result is three separate regimes, with differences and scope for further divergence.

Attitudes to enforcement can vary in response to changes in foreign policy and/or global events. Regardless of how the implementation of fresh sanctions unfolds, we are likely to see the relevant authorities (OFAC, OFSI etc.) adopt a more hostile and aggressive enforcement stance.

Future changes

There is presently a great deal of uncertainty surrounding the future of sanctions against Russia. First of all, there is a timing question. It is unclear when any new sanctions will be implemented, i.e. what will the 'trigger event' event be? New sanctions are unlikely to be implemented on a pre-emptive basis, and will likely require Russia to take an aggressive step. If, as is anticipated, new sanctions are imposed on a multilateral basis, there will need to be consensus between the UK, EU and US as to precisely what action by Russia will trigger the implementation of new sanctions.

Secondly, the extent to which the UK, EU and US regimes will be aligned with one another is unclear. Although there is expected to be a degree of coordination between the three regimes, some disagreement is not unlikely. For instance, certain EU Member States rely heavily on Russian gas, which is expected to influence the measures which the EU is willing to agree to.

Finally, and most importantly, there also remains a great degree of speculation as to what future sanctions will look like. Perhaps unsurprisingly, the new sanctions have not yet been unveiled. Possible restrictions include:

  • Additional blacklisting of individuals and entities: future restrictions are likely to include toughening the existing sanctions against several Russian individuals and organisations, including the imposition of additional "asset blocking". The US could add further Russian individuals and entities (including major state-owned Russian companies) to its Specially Designated Nationals ("SDN") List, and the same for the UK and EU's lists. These sanctions could apply broadly and include those who materially assist or provide support for, or provide goods and services to, sanctioned persons.
  • Sovereign debt: we may see the targeting of sovereign debt, including secondary market transactions, and/or a widening of the list of entities that the current restrictions apply to. More sweeping financial restrictions could be implemented, prohibiting entities from dealing in Russian sovereign debt or debt / equity issued by state-owned entities.
  • Export controls: additional sanctions may include a ban on exporting a wider range of goods (e.g. high technology goods) into Russia, and/or licences may need to be approved for the export of a wider range of goods. 
  • Energy restrictions: Russia relies on global gas and oil exports. We may see the prohibition of the purchase of oil from major Russian energy giants such as Gazprom or Rosneft. Any sanctions package could include abandoning the operation of the Nord Stream 2 pipeline between Russia and Germany.
  • SWIFT: other financial restrictions could be imposed, such as excluding Russia from the SWIFT international payment system. Although this presently appears unlikely, it has been threatened before and was implemented against Iran in 2012. For Russian banks, activity with global banks would be significantly curtailed. This may lead to the termination of international transactions, trigger currency volatility and could cause significant capital outflows. It would also impact wind down activities and the ability for counterparties to exchange messages.

Sanctions law is a fast-moving and complex area. The issues discussed in this article are likely to have a bearing on all international businesses who deal with Russia, even if only peripherally. Maintaining a close ongoing review of matters as they develop is therefore strongly advisable.

Please contact Jonathan Moss, Partner and Head of Marine and Trade, and Emma Smith, Associate, with any queries relating to this rapidly developing and complex area.

Further Reading