Trade flows with Russia since the start of its invasion of Ukraine

Prepared by Maria Grazia Attinasi, Julia Doleschel, Rinalds Gerinovics, Vanessa Gunnella and Michele Mancini

Published as part of the ECB Economic Bulletin, Issue 5/2022.

War-related disruptions to the production and trade of energy and agri-food commodities have raised concerns about global energy and food supply security. Russia is a top exporter of energy commodities and, like Ukraine, also a key global exporter of agricultural commodities. This box first takes stock of recent developments in the trade flows from war-affected areas since the onset of the conflict. Flows of energy and agri-food commodities are tracked using marine freight data and gas flow data, which provide a timelier assessment of recent developments than customs trade data.

The box then examines the evolution of Russia's imports since the start of the war. However, as Russia stopped releasing official customs trade data as of end-February 2022, the box looks at customs data on the exports of a selection of Russia's trading partners in order to approximate Russia's imports. Finally, these data are used to provide a preliminary empirical assessment of the effects of sanctions on Russia´s trade flows.

The quantity of Russia's marine oil exports has recovered to close to pre-invasion levels amid historically high discounts and some diversion of flows towards large Asian countries. Following Russia's invasion of Ukraine, weekly oil shipments from Russia declined (-15%) at end-March 2022 compared with the previous year's level, amid war-related disruptions and the voluntary withdrawal of some energy companies and shipping merchants. This decline was especially pronounced for the United States (-60%) and the European Union (-35%). The price of Russian oil (Ural grade) fell at the start of the war and is currently selling at a steep discount vis-à-vis Brent (-30%) (Chart A). As a result, and amid some volatility, in the first week of July oil flows stood close to their 2021 average level despite having fallen significantly in June. Russia's share in total oil imports by China and India increased to 11% and 14% respectively at end-June, up from 6% and 2% before the war. By contrast, seaborne exports to the United States and the United Kingdom dried up shortly after the start of the war, as both countries banned oil imports from Russia, while the EU scaled back oil imports and is sourcing more oil from the Americas and Africa (Chart B).

Russian gas exports to the EU were also significantly reduced, standing at 35% of their previous year's level in the last week of June 2022 (Chart C). At the turn of the year, Russian gas pipeline flows via central and eastern Europe dropped substantially amid the tensions with Ukraine. With the start of the war, they remained volatile until the recent complete termination of gas flows to Bulgaria, Denmark, Finland, Lithuania, the Netherlands and Poland and voluntary reductions by, or partial cut-offs towards, Austria, the Czech Republic, France, Germany, Italy and Slovakia. As a result, total EU gas imports from Russia in the final week of June decreased by 65% compared with last year.

Increasing imports of liquefied natural gas (LNG) and non-Russian pipeline gas (Chart C) partially compensated for the shortfall, but risks for EU gas provision remain on the horizon as the level of gas storage in the EU stood below the 2015-20 average in early July. On the Russian side, gas is being diverted to Asian routes.

Seaborne exports of agricultural commodities from Russia fell at the start of the invasion and those from Ukraine have come to a halt. Globally, Russia and Ukraine jointly accounted for 24% of wheat and 14% of maize exports in 2021.

Since the start of the war, Russia's seaborne exports of wheat have experienced significant volatility, reflecting disruptions in transportation logistics, but also a counteracting move from Russia whereby its own exports of some agri-food commodities to former Soviet states in the Eurasian Economic Union were temporarily restricted in order to ensure the food security of the Russian Federation. At the end of June, Russia's weekly seaborne exports of wheat stood at 40% of the previous year's level, amid a redirection of more shipments towards Egypt and Turkey. Until recently, with the complete blockade of ports in the Black Sea, grain shipments from Ukraine had come to a halt, aggravating global food security concerns. However, to help ease this resulting global pressure, Ukraine and Russia have agreed to a set-up of safe passage for grain shipments from the Ukrainian ports that should significantly relieve the food security concerns of emerging market economies.

Food security may be at risk in countries that are most dependent on Russian and Ukrainian food exports, given their limited ability to diversify suppliers in the short term. Available nominal customs trade data on global imports of agri-food products (fertilisers, soybean, maize and wheat) point to some heterogeneity across countries and regions in terms of their exposure to imports from Russia and Ukraine (Chart D). Emerging market economies, in particular countries in central Asia and Africa, are among the regions most dependent on Russia and Ukraine for their grain supply. Moreover, an index of export market diversification suggests that higher import exposure tends to be associated with a high concentration of exporters, meaning that the ability of these countries to find alternative suppliers might be limited in the short term.

The recently announced ban on wheat exports from India, the world's second largest wheat producer, may further exacerbate the global food supply situation which is already curtailed by the war. While the Indian ban does not affect euro area imports substantially, it contributes to an all-time high in global wheat prices.

Overall, Russia's merchandise imports have significantly dropped since the start of the war, especially from sanctioning countries. Customs data show that exports to Russia have fallen significantly compared with 2021 levels, as Russia's trade has been disrupted owing to the adverse macroeconomic and transport-related consequences of the war (Chart E, panel a). The contraction is especially pronounced for the countries imposing sanctions (-85% for the United States and -45% for the euro area compared with the 2021 level as of May 2022), though exports from non-sanctioning countries also remain below their 2021 level (e.g. -23% in the case of China).

For the euro area, exports to Russia of goods subject to sanctions (e.g. machinery and transport equipment) are driving the overall exports contraction. Since the Russian invasion of Ukraine, the EU has issued six packages of sanctions against Russia including sanctions on individuals and restrictions on media, transport and financial sectors, and trade.

Initial trade measures targeted military-related goods and products that serve Russia's military, transport and technological enhancement. More recent restrictions focus on luxury goods (both imported and exported) and other imported goods that generate revenues for Russia, including coal and oil. Looking at euro area trade flows with Russia (Chart E, panel b), machinery and transport equipment account for most of the overall fall.

An empirical analysis suggests that the first round of sanctions in March 2022 reduced Russian imports by 15%, with sanctioned products bearing the brunt. An empirical analysis − using a difference-in-differences approach based on a sample of 59 Russian trading partner countries covering around 86% of total Russian imports in 2021 − confirms that in March 2022, compared with the previous month when sanctions were not in force, the Russian imports from sanctioning countries were 20 percentage points lower than those from non-sanctioning countries. A breakdown across selected product groups suggests that Russia's access to goods relevant for producing military equipment, such as vehicles and machinery and mechanical appliances, was impeded significantly in relative terms (Chart F). Overall, this corresponds to a drop of about 15% in total Russian imports in March due to the first round of sanctions.

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