The Aftermath of MH17: Russia, Ukraine & Sanctions

Abhorrence, Shock, Outrage, Devastating, Indefensible. This is just some of the justified hyperbole used by governments and media to describe the significance that the shooting down of MH17 has had on the wider world and the Ukrainian crisis. The fact that such an event occurred was enough to refocus the awareness on the rapidly deteriorating situation in the region, one that has got progressively worse as 2014 has developed. The ‘west’ and their allies have announced a round of fresh sanctions targeting Russia, who is widely blamed as the escalating force behind the current impasse in the Donetsk region of eastern Ukraine following its earlier annexation of Crimea this year. These so called ‘Tier 3’ sanctions are more sector specific than those that have gone before and are more akin to the sanctions we see employed against Iran and North Korea. The idea is to severely disrupt the target country’s economy by prohibiting banking and industry specific activities thus creating an unsettled financial and economic environment thereby forcing the target nation into submission or at the very least to join the negotiation table. Up until now the measures seen have been on individuals rather than whole companies and sectors. This latest round can be seen as a victory, in some quarters, for the advocacy of “hawk diplomacy”. Whilst the US sanctions are certainly the most severe, the EU has not gone as far due to its dependence on Russia for energy.

So whilst on a macro level the impact of this is quite clear, how does it translate down the chain to the micro level? And to be specific, Specialised Products? Unfortunately, the answer to this is not as clear cut as one would hope. Trying to navigate and cut through the legal jargon that dominates the language of sanctions is not an easy task. But what we can glean in the relation to shipping markets is that the impact on shipping, and therefore Specialised Products, seems to be quite minimal for now. It appears that the only issue is the treatment of funds which emanate from Russian banks that have been targeted. Of course, this situation can change at any time and so it is probably best not to consider this as set in stone.

Perhaps for shipping the more immediate issue for owners and charterers alike is the Ukrainian Government Directive No. 255. This closes all ports in the territory of Crimea on the basis that the area is temporarily occupied and includes but is not limited to the ports of Kerch, Theodosia, Sevastopol, Yalta and Evpatoria. The fact that the Crimea Peninsula is under Russia control and authority means there is little indication as to whether this could be enforced but there is the possibility that should a vessel call any ports in the Ukraine mainland before or after this then authorities could detain the vessel. The only real test of this that we have seen so far has been in the vegetable oil markets and for now it seems legal workarounds and the use of international waters are possible and so have not impacted on charterers business. Again, the situation is changeable.

In a wider context this current crisis and indeed the problems in Iraq, Syria and more recently Israel could have a further impact on what is already a tense geopolitical situation. Whilst the Ukrainian issue is a problem the fallout over Israel could have a much wider ranging impact on our markets considering its location and the sympathies and emotions the conflict has evoked. If anything, it goes to show just how intrinsically linked shipping is to the norms and mechanics of the globalised world.

specialised blog 27 aug

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