Last night, Russia began an invasion of Ukraine in the biggest attack seen on the European continent since World War II. This marked the culmination of weeks of military buildup by Russia and frantic diplomatic negotiations by the U.S. and its allies and partners to avert military action.
The invasion drew immediate and strong condemnation from the international community. Though the U.S., EU, UK, and others sought a diplomatic solution, they have also been coordinating on sanctions. This coordination was on display earlier this week when the U.S., EU, UK, Canada, Japan, and Australia moved to cut off Russia from raising sovereign debt due to preliminary menacing actions.
However, amid the full invasion, they are now mobilizing the most severe sanctions possible. This afternoon, President Joe Biden announced America’s sanctions after extensive morning meetings with his cabinet, the G7, NATO, and other allies and partners. These include:
- Export Prohibitions: U.S. companies attempting to export to Russia a range of high-tech equipment, including microelectronics, telecommunications equipment, sensors, maritime equipment, aircraft components, and avionics, must first receive permission from the Commerce Department. It also prohibits Russian companies and military end-users from acquiring U.S.-origin software or technology, as well as plants and components made with U.S.-origin software or technology – even if it was made in a foreign country.
- Sanctions on Banks: Russia’s two largest banks will be prohibited from the U.S. financial system, and three others will have full blocking sanctions as well.
- Sanctions on State-Owned Enterprises: 13 Russian state-owned firms will be prohibited from transactions, including debt and equity, in U.S. dollars.
- Sanctions on Russian Elites: Members of Russian President Vladimir Putin’s inner circle and their families are subject to asset freezes and travel bans.
- Sanctions on Belarusian Banks, Individuals, and Companies: Belarus’ military and leadership has assisted Russia’s military in its invasion of Ukraine.
- Corresponding sanctions have or will likely be released by the EU, UK, Canada, Japan, Australia, Singapore, Taiwan, South Korea, and potentially others.
There are two notable sanctions that are not included. First, is more robust targeting of Russia’s energy sector. Due to elevated gas prices and Europe’s overreliance on Russia for oil and natural gas, this appears off the table for now. The other is locking Russia out of the SWIFT interbank payment system that underpins much of global commerce. Though the blistering invasion prompted a renewed push by many nations and in Congress, the move was blocked by Germany, Italy, Hungary, and Cyprus. Without united support, this sanction does not have a path forward.
Impact and Risks
The invasion, as well as the sanctions are having a far-reaching and global impact.
Immediate effects have been felt most acutely in the markets and commodities. Brent crude oil breached $100 per barrel for the first time since 2014, which will likely translate to higher prices at the pump for everyday Americans and transportation costs for companies. Major Russian oil buyers are already reporting difficulty securing bank guarantees. European natural gas futures spiked 52%. Stock markets are down around the globe. The Russian ruble is collapsing.
The sanctions impact will play out in the coming days, weeks, and months and could cause disruptions to supply chains, financial and capital investments, and commercial contracts. There is also the risk of cyberattacks not just on Ukraine but on the U.S. and its allies and partners. As one observer noted, “The Colonial Pipeline is going to be like child’s play if the Russians truly unleash all their capability.”
At Your Service
The team at Michael Best Strategies and Michael Best & Friedrich LLP are tracking sanctions, as well as the situation on the ground in Ukraine, very closely. If you have specific questions on the extent of the sanctions, whether the War in Ukraine or resulting supply chain issues constitute a force majeure event in a supply contract, how the law requires a manufacturer to allocate product to its customers if raw materials or component parts are limited or unavailable, or whether the regulatory environment will change because of the events in Ukraine, please let us know and we will reach out to you directly through this link.
FACT SHEET: Joined by Allies and Partners, the United States Imposes Devastating Costs on Russia
U.S. Department of Commerce & Bureau of Industry and Security Russia Rule Fact Sheet
U.S. Treasury Announces Unprecedented & Expansive Sanctions Against Russia, Imposing Swift and Severe Economic Costs
U.S. Treasury Targets Belarusian Support for Russian Invasion of Ukraine