Commentary: Russia-Ukraine tension may affect trade

Bluewater Reporting closely monitors geopolitical events because of the potential effect on the ocean liner shipping industry.

   Crimea has become one of the most contested regions in the world since the Russian Federation declared an annexation by military force in 2014.
   The Ukrainian government has opposed the annexation with the backing of Western countries led by the United States.
   On Nov. 25, tensions flared when Russia seized three Ukrainian ships due to military transgressions. The Ukrainian government has denied these transgressions, and Ukrainian President Petro Poroshenko is planning military action. Poroshenko issued a statement on Nov. 26 saying that, “According to the decision of the National Security and Defense Council of Ukraine adopted tonight, as president and as supreme commander-in-chief of the armed forces of Ukraine, I have fulfilled my constitutional duty, and a few hours ago, by my decree, I introduced martial law all over Ukraine starting from 9:00 a.m. Nov. 28.”
   With the threat of military action escalating, Western countries are considering placing further sanctions on the Russian Federation.
   According to the United States Treasury Department, several sanctions currently are active to prohibit growth in the Russian economy. In cooperation with the United States, other North American Treaty Organization (NATO) countries also have sanctions placed on Russia.
   Norbert Roettgen, a member of German Chancellor Angela Merkel’s party, does not like the aggression Russia has shown, saying, “In my view, such behavior cannot remain without consequences, and I don’t think that one should say that there won’t be any further sanctions.”
   President Donald Trump does not like the aggression shown by Russia either. “I don’t like that aggression at all. Absolutely. And by the way, Europe shouldn’t like that aggression. And Germany shouldn’t like that aggression.”
   Trump also opted to cancel a meeting with Russian President Vladimir Putin at the G-20 meeting in Buenos Aires.
   Current Russian sanctions devised by the United States and NATO specifically target the oil and gas sector.
   The Russian government is dependent upon the sale of oil and gas to fund the federal budget.
   According to the United States Energy Information Agency (EIA), 36 percent of the Russian federal budget revenue in 2016 came from oil and gas exports.
   With oil and gas comprising such a large percentage of the budget, the United States and NATO target this sector for maximum impact. The United States specializes in the gas and oil industry as the current top producer in the world. New advanced technological methods have allowed the United States to achieve record production growth and sanctions block this technology from reaching Russia. Sanctions also block United States companies from collaborating with Russia, depleting expertise and labor. In addition to prohibiting technology and halting collaboration, NATO countries have blocked capital for investment in Russia. Russia has turned to China for capital, but investment still has significantly decreased since the Crimea annexation in 2014.
   Using data compiled from George Washington University, the chart below shows the amount of foreign direct investment (FDI) in Russia from 2014 to 2016 by the United States, France and Germany, which are leaders in NATO and among the top five investors in Russia. These three countries have sanctioned Russia, causing their FDI in Russia to drop from 2014 to 2016.


  
   Here at Bluewater Reporting, geopolitical events are closely monitored due to the impact on the ocean liner shipping industry. And potential sanctions placed on Russia could impact services that we monitor.
   According to the World Bank, the largest exporters to Russia are China, Germany and the United States.
   The Bluewater Reporting Country-to-Country Transit Analysis by Service tool shows China currently has the most services in the database with a destination in Russia. Due to the Chinese ability to stay out of global conflict, these services likely would not face any threat by sanctions.
   An opportunity could arise for the Chinese, if Germany and the United States reduce exports to Russia due to sanctions.
   According to the Bluewater Reporting Country-to-Country Transit Analysis by Service tool, Germany currently has 12 services that transit to Russia, as illustrated in the chart below. These services potentially could be impacted by additional sanctions. The largest service, based on total deployed capacity, is Maersk Line’s ECUBEX loop. This service currently operates with eight vessels and has a total deployed capacity of 19,976 TEUs.



   The United States currently has four services that have a destination in Russia, as illustrated in the chart below, which was also constructed using data from BlueWater Reporting. While the United States has fewer services that call Russian ports, the capacity is far greater than services offered from Germany to Russia. The largest service on the chart found below, based on total deployed capacity, is the 2M Alliance’s TP2/AW12Jaguar/Phoenix loop, which deploys 15 vessels and had a total deployed capacity of 194,880 TEUs.



   If tensions continue to escalate between the Russian Federation and Ukraine, the West is likely to add sanctions and wage economic warfare. If the West were to sanction Russia as thoroughly as Iran or North Korea, ocean liner services to Russia from the West likely would be impacted. However, if Russia were to de-escalate tensions and release the boats and sailors captured, the ocean liner services from the West will not be impacted.

Alexander Ullmann is a BlueWater Reporting analyst.

© 2018 BlueWater Reporting (www.BlueWaterReporting.com) Used with permission