What I think about the sanctions imposed on Russia and yet to come.

Lot of things going on today in the sanctions world. What can we predict and what will be the effect?

A new sanctions package -to be announced soon (tomorrow?) by US, EU and UK - will likely be more effective than the sanctions that were issued earlier this week, in the days before the invasion.

Some people call the sanctions from earlier this week “harsh” but I think they there in fact very moderate. For example, while the two banks placed on the SDN list are crucial to financing the Russian defense industry and exports and hold assets combined of billions of dollars, they are not retail banks.

The scope of the next round of sanctions will be wider. Either restrictions via SWIFT or more Russian banks placed on the “list of all lists”: the SDN list. If this happens then it will be very tough for companies in the West to keep on doing business with Russian counterparts.

A next round of sanctions may also include the exclusion of additional Russian banks from getting debt. We have seen these types of sanctions in the past already: Since 2014, when Russia annexed Crimea, a few key Russian banks have been subject to sectoral sanctions, namely that they were cut off from financing from the US and Europe. But they were not placed on the SDN list.

In addition, I understand that several goods will be placed under the export controls. So far, we have seen too little of those measures. Since 2014, we see some restrictions but those were mainly on military goods. I think that broader export controls on other goods beyond just military items will be very effective. We can make it harder for Russia to use Western technology and Western products. You have to somehow try to find the right way to make a serious dent in the Russian economy. This is not easy using these financial and trade restrictions, but if you want to achieve anything, do it in a similar way like was done with Iran, with comprehensive sanctions. If not you will never get Putin back on the negotiation table.  

Can Putin avoid the effect of new sanctions? On the one hand, he has been able to prepare for any new sanctions for eight years. The Russian central bank's reserves have increased more than 70 percent since 2015, according to The Financial Times. The reserves are now worth approximately $640 billion, which is equal to almost one-and-a half years of its export revenues. Further, he’s been trying to find allies outside the West.

 However, it may not be as easy as he thinks. You see two key shifts now.

First of all, countries that in the past did not impose sanctions against Russia, like Australia, Canada, Singapore and South Korea have announced they will issue them. If more and more countries impose sanctions, the sanctions will be more effective. It will generally be harder for Russian business to find business partners abroad.

Second, we’ll see a shift in how companies feel about doing business with Russia: Because of the invasion in the Ukraine, there will be more Western companies who will feel uncomfortable doing business with Russia.

I don’t think that China will join the ranks of countries that impose sanctions on Russia. Through China – a country that has been practicing evading sanctions against North Korea – Russia will be able to keep on receiving goods that they need to keep their economy going. But, we’ll have to see what China does in the longer term.

What does it mean for companies that do business with Russia? This means that companies may not be able to execute on contracts they already signed and that they won’t be able to sign new contracts. So, it can be that the next package of sanctions will prevent the delivery of the goods and – possibly – you won’t be able to get paid.

Finally, we can also expect that regulators will be stricter with respect to Russia than they were in the past. All in all, there will be a lot of challenges for companies in both Russia and the West.