Two years have passed since the Ukraine conflict, how are Russian companies doing?

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February 24, 2024 marks the second anniversary of Russia's invasion of Ukraine. Back in February 2022, in a move that shocked the international community, Russia launched a special military operation against Ukraine.

According to November 2023 data At least 10,000 civilians have been killed in Ukraine since the invasion began, including 560 children, according to the United Nations Observatory for Human Rights in Ukraine. Meanwhile, declassified US intelligence reports estimate that Russia has lost more than 300,000 troops.

Since the start of the war, Russia has faced increased sanctions from the UK, US, EU, Canada, Australia, Japan, Switzerland and others, affecting both Russian companies and certain individuals.

What are some recent sanctions imposed on Russian companies?

Most recently, the UK announced the following to commemorate the second anniversary of the invasion. 50 new sanctions The attack on Russia primarily affected electronics companies, military manufacturers, and oil and diamond traders.

These are aimed at eating away at Russia's war costs by targeting the industries that provide most of Russia's income. Furthermore, the UK is ensuring that sanctions against munitions manufacturers deal a powerful blow to Moscow's arsenal. These are expected to primarily affect companies that provide explosives, rocket launch systems and missiles to Russia's arsenal.

On February 22, British Foreign Secretary David Cameron said: “Ukraine can and has shown it will defend itself.” And two years later, we are united in support of Ukraine. ”

“Our international economic pressure means Russia cannot afford this illegal invasion. Our sanctions will force President Putin to make a desperate bid to fund a hard-fought war. “The resources we need are running out,” he added.

And he stressed, “Together, we will not bow down to tyranny. We will continue to support Ukraine in its fight for democracy for as long as necessary.”

In early January, the EU added Russian state diamond mining company PJSC Alrosa and its CEO Pavel Alekseevich Marinichev to its sanctions list as part of the 12th round of individual economic sanctions against Russia. However, Alrosa is already facing sanctions from the US, UK, Canada, Bahamas and New Zealand starting in 2022.

Have these sanctions worked so far?

According to the European External Action Service (EEAS), sanctions imposed by the EU on Russia hit several sectors of the Russian economy considerably in 2022.

The EEAS points out that Russia's manufacturing industry will contract by 6% by the end of 2022, with car production down 48% year-on-year. Wholesale trade in 2022 decreased by 17% compared to the previous year, and retail trade decreased by 10%. High- and medium-technology manufacturing also suffered a 13% annual loss.

But the tide appears to be turning last year, with Russian factory activity evolving at the fastest pace in nearly seven years in December 2023, according to the S&P Global Purchasing Managers Index. The Russian car market also rose by about 120% in September 2023.

The Russian government has also managed to circumvent sanctions in ways such as selling gold reserves to continue financing the war in Ukraine. One of the most pervasive of these is a global network of corrupt and shadow organizations that act on Russia's behalf when it is unable to act openly.

Russian companies have also set up numerous subsidiaries and shell companies in countries with relatively good relations with Russia, and their operations may be subject to less scrutiny.

These include Georgia, Armenia, Kazakhstan, UAE, Turkey, etc. Through these subsidiaries and countries, the Russian government and companies still have access to sanctioned products such as semiconductor chips and weapons.

Russia'sshadow fleet” is made up of a number of small oil tanker operators operating vessels in various conditions, and most of the seaborne shipments of Russian Ural crude below the $60 price cap imposed by Western sanctions are now underway. It also contributes to the avoidance of oil sanctions by ensuring that the oil is not damaged. These vessels are typically provided by countries such as Cameroon and Liberia.

oil and energy companies

PJSC Gazprom Neft, the oil production subsidiary of Russian gas giant Gazprom, was one of the oil companies slapped with sanctions by the EU in March 2022 aimed at limiting Russia's oil revenues.

Since then, the company's net income for the second quarter of 2023 has fallen by about 43% due to sales discontinuations, the company disclosed after not releasing financial results for a year. The company also recently announced that it is putting its Bulgarian service station up for sale.

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However, in late 2023, Gazprom Neft appeared to be reinvigorated, announcing that it would step up exploration activities and refocus on projects that remained on hold during the pandemic. The company's CEO, Alexander Dukov, faces no EU sanctions and still has ownership interests in the French Riviera.

Another Russian oil producer, Rosneft, was also sanctioned in March 2022. However, the company recently announced that its full-year profit for 2023 will be around $14 billion (€12.9 billion).

Rosneft stressed that it had to expand its gas production facilities due to external regulations on oil. The company is also in talks with the German government about a possible plan to nationalize Rosneft Germany.

Transneft, the world's largest oil pipeline company, which was also subject to sanctions, revealed that its pipeline oil exports fell by 6.5% in 2023.

Paramount Energy & Commodities, a Swiss-based energy company, was among the energy companies hit with sanctions by the UK in November 2023, with the UK demanding that Russia take control of the company to reduce the impact of G7 oil. They argued that the company was using its opaque ownership structure to its advantage. Sanctions.

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mining company

Nordgold, Highland Gold, Ural Mining and Metallurgical company, and Alrosa are some of the Russian mining companies affected by international sanctions.

Nordgold, one of Russia's largest gold mining companies, was sanctioned by the UK in November 2023. The sanctions also extended to Marina Mordashov, the wife of billionaire Alexei Mordashov, who reportedly owns 52% of Nordgold's shares.

However, the company appears not to have been too dissuaded since then, and by the end of November last year it was reportedly considering investment opportunities in Brazilian mining. This includes exploration for gold, lithium and copper.

Mauro Sousa, director general of Brazil's mining regulator ANM, said in a statement: “As a member of BRICS, Russia is a strategic partner of Brazil, and it is important that Russia invests not only in gold but also in minerals important for the energy transition and green economy. ” he said.

However, in other cases these sanctions appear to be working. In early 2023, Canadian mining company Olea Mining postponed its purchase of Nordgold's stake in the Montagne d'Or gold project in French Guiana until all sanctions by the UK, Canada, France, EU and US are lifted. Then he announced.

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This came after Orea Mining's permission to acquire the project was denied by the Canadian government.

If the owner or CEO of a mining company is sanctioned rather than the actual company, the business impact is also likely to be very minor.

For example, Konstantin Sturkov, the owner of Russia's fourth-largest gold mining company Uzhralzolot (UGC), was also sanctioned. However, despite this, the company launched an initial public offering (IPO) on the Moscow Exchange in November last year.

The company also said it may pay out up to 50% of its profits to shareholders under a new dividend policy currently in preparation. UGC also stressed that the sanctions imposed on the owners will have little impact on its operations, jobs and exports, as the company does not rely on Western-made equipment.

Russia's diamond sector also suffered further damage in January, with state diamond mining company Alrosa facing sanctions from the EU. However, the diamond manufacturing company was already struggling under the weight of sanctions imposed by various other countries.

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As reported by Rapaport, in September 2023, the company informed the Gems and Jewelery Export Promotion Council of India (GJEPC) that it would suspend two future sales due to declining demand.

“Alrosa has decided to temporarily suspend rough diamond allocations in September and October 2023. We believe this approach will strengthen the balance between supply and demand in the market,” the company said in a note to GJEPC. I believe that doing so will have a stabilizing effect.” This helps prevent overstocking, especially when manufacturers are closed for Diwali. ”

financial institution

In February 2024, the day of Russia's invasion of Ukraine, the United States reacted quickly and decisively by imposing restrictions on Russia's top 10 financial institutions.

Around $46 billion (42.4 billion euros) worth of foreign exchange transactions take place every day in Russian financial institutions. Approximately 80% of these are denominated in US dollars, so these sanctions are expected to be extremely damaging to Russia's banking and financial system.

The two most important banks targeted by sanctions are Sberbank and VTB Bank, accounting for more than half of Russia's banking system in terms of asset value. However, most of their operations rely on payments processed through the U.S. financial system.

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However, some critics say these sanctions are not strong enough, pointing to the fact that Sberbank will still report a record annual profit of $17 billion (15.7 billion euros) in 2023. ing. The bank, which is currently about half owned by the Russian government, is also exploring privatization opportunities.

Additionally, the company recently launched direct bank transfers to Iran, which also faces a number of Western sanctions, for both businesses and individuals. The move is said to be aimed at helping tourists as Russia seeks closer economic, military and political ties with Iran after the Ukraine war.

For VTB Bank, these sanctions appear to have been more effective, as the bank's UK branch fell into bankruptcy in the face of the Ukraine war. The government is expected to remain in power until the end of this year.

But the bank has also said it plans to expand into China in the coming months, and Russia has also strengthened ties with China after being ostracized by the international community. Back in September 2022, VTB was also the first Russian bank to send money to China in RMB via the SWIFT payment system.