The Scenario

February 2022 saw a rapid escalation in diplomatic relations in relation to the conflict known as the 'Donbass War' that began in 2014. On 21 February, Russian President Vladimir Putin officially recognised two separatist republics self-proclaimed in spring 2014 in the region: the Lugansk People's Republic and the Donetsk People's Republic. Subsequently, on 24 February, Russia launched military operations in Ukrainian territory, kicking off a conflict with uncertain outcomes.

The EU, UK, and US responded first to Russia's recognition of the two republics and then to the invasion on the ground by approving the first sanctions packages. On 21 February, the US adopted a first tranche of sanctions measures, which were followed on 23 February by the first packages passed by the EU and the UK.

The EU formally adopted on 25 February a second tranche of measures, reinforcing the first. These enter into force after publication in the EU Official Journal.

Italy-Russia Trade Interchange

The Confindustria Studies Centre has calculated that Russia accounts for 1.5% of exports Italian goods (compared to 2.7% until 2014, the year of the first sanctions following the annexation of Crimea to Russia), affecting over 11,000 companies and 3% of imports (5.2% pre-2014).

The decline in the weight of the Russian market, resulting from the sanctions linked to the annexation of Crimea, as a destination for Italian exports is widespread in all the main sectors, with significant peaks in consumer goods: from thefurniture (8.0% pre-sanctions; 3.0% in 2021), to the wood (5.5% - 1.1%), to theclothing (7.3% - 3.8%) to products in leather (4,6% – 1,7%).

Indeed, as is well known, the sanctions have weakened Russian economic growth and domestic demand and significantly devalued the rouble.

On the side of theimportabout one fifth of Italian gas and oil purchases are from Russia.

Russia hosts 2.4% of the Italian stock of capital invested in the world. Italian capital has created 442 subsidiaries that employ around 34.7 thousand people and produce a turnover of EUR 7.4 billion, growing by an average of +7.5% over the last six years, much more than the subsidiaries in non-EU countries (+2.2% over the same period) and in the United States (+5.2%), the leading non-EU country for the presence of Italian multinationals. Russian capital invested in Italy carries much less weight, accounting for just 0.1% of the total stock received by our country. Russian multinationals account for only 0.3% of the foreign multinationals in Italy and produce just over 1% of the country's turnover, amounting to over €8 billion.

The impact of sanctions on Italian exports

The impact of the measures taken from the EU on Italian exports is modest overall.

The block export concerns 321 million euro of Italian sales in Russia in 2021, accounting for 4.2% of Italian exports to Russia and the 0.06% of Italy's total exports worldwide.

For all affected products, Italy's exposure to the Russian market, i.e. the weight of the Russian destination on Italy's total exports of those products worldwide, is 1.5% in 2021.

The importance of the Russian market for Italian products affected by sanctions was already declining in 2021, compared to the previous three-year period when sales amounted to EUR 427 million on average per year.

Although the impact of sanctions on Italian exports is limited, this appears particularly significant for some specific Italian sectors. In fact, for specific sectors, exports to Russia of goods affected by the sanctions represent a significant share of the total exports of those goods worldwide.

Among the main products affected by the blockade, defined as those with an export of at least EUR 5 million to Russia, there are in fact some for which the weight of the Russian market exceeds 10% of the total. These are machineryalso to high technologysuch as: parts of telecommunications satellites; distillation or rectification apparatus; parts and accessories of X-ray apparatus.

EU Sanctions to 25 February 2022*

Following the Russian military intervention in Ukraine, the European Union tightened the initial measures taken on 23 February, which continue to remain closely coordinated with those of the US, UK and other international partners

The second tranche of measures, formalised on 25 February, adds to and complements the previous ones, and strengthens the sanctions aimed at affecting theRussia's access to capital markets affecting its financial system and, through it, its industrial capacities and the national economy.

• In particular, the EU and US measures impose strict export controls preventing Russia's access to advanced technologies to limit its military and industrial capabilities.
• In addition, the measures are directed at members of the Russian elite and their families, including President Vladimir Putin and Foreign Minister Lavrov, and other strategic entities for Russian industry and finance, now subject to an asset freeze and entry ban in the EU and US.
• Finally, the US and EU measures extend to entities in the Belarus to sanction their role in the conflict.
• As for the energy sector, the EU prohibits the sale, supply, transfer or export to Russia of specific goods and technologies in oil refining and introduces restrictions on the provision of related services, aiming to disrupt the Russian oil sector.
• As for the transport sectorthe EU is introducing an export ban on goods and technologies from the aviation and space industry, as well as on the provision of insurance, reinsurance and maintenance services related to them and the provision of technical and financial assistance, with the intention of squeezing the availability of aircraft, spare parts and equipment and dealing a severe blow to the country's economy and connectivity. Indeed, it should be remembered that about three quarters of Russia's current commercial aircraft fleet is built in the EU, the US and Canada.

Further sanctioning options remain on the table should the situation deteriorate further. This is the case, in particular, of selective disconnection from the system SWIFTcurrently under discussion.

The measures of 23 February:

• Individual measures. Measures amending EU acts adopted in 2014 as part of the sanctions imposed on Russia over the annexation of Crimea add 22 more natural persons and entities to the list of already 'designated' persons and entities, including Russian defence and economic development ministers, deputy prime ministers, senior military commanders, journalists, bankers and 4 legal entities, including two banks, a financial institution and an information agency, and 336 members of the Parliament of the Russian Federation (Duma). The measures include: freezing of assets, a ban on making funds available to designated persons and a travel ban preventing entry into or transit through EU territory.
• Financial restrictions and limitations on Russia's ability to raise capital on European financial markets. A further measure expands the scope of the one adopted in 2014, including Russia, its government, its central bank and any related legal person, entity or body among the entities prohibited from buying, selling, providing investment services or assisting in the issuance or processing of transferable securities and money market instruments issued after 9 March 2022. It also prohibits the direct or indirect provision of new loans or credits to any legal person, entity or body 'designated' before and after 23 February 2022.
• Restrictive measures towards the two self-proclaimed People's Republics of Donetsk and Lugansk. By another measure imports into the EU are banned of goods originating therefrom, the direct or indirect provision of financing, financial assistance, import-related insurance and reinsurance, the acquisition of new real estate, new entities, shares and other securities of a participating nature, the provision of loans or other financing, the creation of joint ventures, and any investment services directly related to these activities. Export is also prohibitedsale, supply, or transfer of goods and technology in the two republics in the transport sectors; telecommunications; energy; the prospecting, exploration and production of oil, gas and mineral resources. Finally, for services related to tourism activities in the specified territories, provision is made for the execution until 24 August 2022 of obligations arising from contracts concluded before 23 February 2022, provided that the competent authority has been informed at least five working days in advance. Authorisation schemes are provided for the competent authorities of the Member States.

* The continuously updated provisions are available via the link:

https://eur-lex.europa.eu/oj/direct-access.html  (L048 onwards).

Follow the development of the conflict live on the Sole24ore website 

https://www.ilsole24ore.com/art/nuove-esplosioni-kiev-e-kharkiv-bielorussia-pronta-ad-affiancare-truppe-russe-AEoVAkGB

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