Commodity traders are grappling with a host of Western sanctions on Russia, but they’re not yet prohibiting deals with the country.

On Thursday, the U.S., U.K. and European Union all announced measures targeting Russia after its invasion of Ukraine. While they could slow down trade with Russia, they won’t stop it.

Among the most significant pieces of sanctions documentation was a General License issued by the Office of Foreign Asset Control that authorizes payments for energy. And “energy” spans everything from oil to wood.

That’s a sign that commodities and energy will still be able to flow, but there remain multiple issues that traders will have to wrestle with before doing Russian business, according to
Daniel Martin, a partner who advises traders, shipowners, insurers and brokers on sanctions at law-firm HFW. On that list are five main issues:

  • Whether counterparties or their owners are sanctioned
  • Whether banks involved in the flow of payments are able or willing to facilitate them
  • Whether the commodity in question comes from a sanctioned region
  • Whether the ships required to transport the cargoes are sanctioned, and whether vessels can proceed unimpeded
  • Whether cargoes and ships are able to find insurance

“We’re certainly not at the point of there being an embargo,” he said by phone. “There are still trades that are permitted, provided you do the checks.”

Daniel Martin, a partner at law-firm HFW
Daniel Martin, a partner at law-firm HFW

While the sanctions targeted some of Russia’s biggest banks, they stopped short of the measures that some traders anticipated could mean huge disruption within commodities markets—including barring the country from the SWIFT payments system.

As a result, the ability to proceed with commodities trading will depend on whether companies are willing to do the levels of diligence required, and whether they deem it to be financially worthwhile, Martin said.

Traders are also faced with potentially fast-moving changes in sanctions policy. While it’s possible that deals can be completed now, once they have been assessed, the situation is so fluid that companies looking to start new Russian business are likely to take a more cautious approach, according to Patrick Murphy, a lawyer a Clyde & Co.

“Things are changing so quickly that it’s entirely possible that when it comes to the execution of a contract, the landscape has changed and they find some part of it is impossible to perform,” he said. “It’s entirely understandable that people are being very cautious at the moment, whilst things are in a state of flux.”