The Russian Invasion of Ukraine & Its Effect on Business in the EU – Part II

As the war in Ukraine continues, businesses worldwide are feeling the impact. In this article, we will explore the effect of the Russian invasion on businesses in Europe.

Sanctions Imposed on Russia

In response to Russia’s invasion of Ukraine, the United States and the European Union have imposed sanctions on Russia that have had a significant impact on Russia’s economy. For example, Russia’s ability to receive payments for exports has been disrupted, they are no longer a part of SWIFT, and their currency has been devalued. Due to sanctions imposed on Russia, its economy is projected to decline by 0.7% in 2022 and by 1.21% in 2023.

The sanctions have also had a significant effect on businesses in Europe. Many companies have lost access to Russian markets, and some have shut down their operations in Russia. With the EU being the largest investor in Russia and exporter to them, this has affected both the Russian and EU economies.

Beyond the human toll, airports, seaports, and other essential services like roads and bridges have been destroyed in Ukraine impacting businesses transport of their product or services.

The Russia-Ukraine crisis has been particularly painful for banks, mainly European institutions. The sanctions placed on Russia by the U.S. and the EU have led to several problems for banks, including exposure to potential defaults by both Russia and Ukraine and decreased trade between the two countries. French banks have especially been hit hard by the crisis. Their exposure to Russian debt and Ukrainian bonds has caused their credit ratings to be downgraded. Additionally, their subsidiaries in Russia and Ukraine have been hurt by the economic slowdown in those countries. Ukraine’s $60 billion of bond debt has been changed to junk status mainly because the possibility of Ukraine defaulting on this debt went from minimal to possible danger.

The crisis has impacted US banks, but to a lesser extent than their European counterparts. Citigroup, for example, has a $10 billion exposure to Russia, which is a small portion of the bank’s $2.3 trillion in assets. The crisis has also led to a slowdown in lending between banks. This is because banks are worried about the health of their counterparts and are reluctant to lend money to one another. This could lead to a liquidity crisis similar to the one that occurred in 2008.

The invasion of Russia into Ukraine has affected these two countries and the EU in general. With the rise in sanctions, boycotts, and effects on banks in numerous countries, the entire EU is nervously watching what unfolds.