Bilateral relations between Russia and the United States may be about to deteriorate further. The United States’ Treasury Department submitted a "Kremlin Report" to the Congress on Monday, January 29. The "Kremlin List" is the name that the mass media have given to the Treasury Department’s report on 114 high-ranking Russian officials and 96 businesspersons, who may face new sanctions. It is noteworthy that the list seems to have been derived from the ranking of the 200 richest people in Russia published by the Russian edition of the Forbes magazine.
However, the compilation of the list itself does not mean that imposition of sanctions is imminent. According to Article 231 of the "Countering America's Adversaries Through Sanctions Act," United States President Donald Trump has six months to approve this list. In addition, the president of the United States can waive sanctions with respect to a person. However, the president must submit a written determination that the waiver is in the vital national security interests of the United States.
For now, sanctions are hypothetical. Many political analysts and observers believe that Donald Trump has a more restrained attitude toward sanctions on Russia than his predecessor Barack Obama. However, the unpredictability of the American leader, whose first few months in office were marked by the lifting of a number of high-profile restrictions and bans, cannot be ignored.
While the White House and the Kremlin are playing their cards, Ukraine should already be thinking about the impact that hypothetical sanctions may have on the Ukrainian economy and transport system because practically all major Russian companies, many of which have operations in Ukraine, would be affected. Every ton of import or transit cargo that is lost will inevitably affect the operations and financial performance of the Ukrainian Railways public joint-stock company (Ukrzaliznytsia) and Ukrainian seaports.
The approximately 15 million tons of Russian cargoes that are transported on Ukrainian railways and through Ukrainian ports could be affected by sanctions.
Import cargoes
The Ukrainian transport sector, especially Ukrzaliznytsia and seaports, may lose about 15 million tons of cargo if the White House decides to impose sanctions based on the "Kremlin List". Import cargoes will account for almost half of the lost cargo volumes (about 42%).
At least 10 of the 96 oligarchs on the "Kremlin List" are major customers of the Ukrainian transport sector. These 10 "friends of Putin" account for about 30% of the total volume of imports from Russia into Ukraine or 6.3 million tons of cargo in 2016. The figure of 6.3 million tons may have to be adjusted to take account of the shutdown of steel plants in the non-government-controlled territories in the Donbas.
Who are these oligarchs? They are mainly raw-material oligarchs, who export coal, iron ore, fertilizers, cement, etc. to Ukraine. They include Iskander Makhmudov (who owns the Kuzbassrazrezugol company), Vladimir Lisin (the owner of Novolipetsk Steel or NLMK), and Andrei Melnichenko (who owns the EuroChem group). These three businesspersons’ companies export more than 4 million tons of goods to Ukraine. The remaining seven pro-Kremlin oligarchs, who include such influential figures as Roman Abramovich, Vagit Alikperov, Alisher Usmanov, Alexei Mordashov, and others, export an additional 2 million tons of goods to Ukraine.
The heads of a number of major Russian state companies are also on the "Kremlin List". These include Alexei Miller (Gazprom) and Igor Sechin (Rosneft). Gazprom and Rosneft exported about 1.8 million tons of cargo to Ukraine in 2016. However, it is not yet clear whether sanctions will be imposed on only the heads of these companies or whether sanctions will be extended to the companies themselves.
Transit cargoes
The second most important group of cargoes that Ukraine may lose is transit cargoes. According to estimates by the Center for Transport Strategies, the Russian cargoes that are transported on transit through Ukrainian railways are mainly raw materials, such as iron ore, coal, and ferrous metals. These cargoes totaled 12.8 million tons or 77% of the 16.6 million tons of Russian transit cargoes in 2017. The undisputed leaders here are Alisher Usmanov and his Metalloinvest company. The other major sources of transit cargoes are Vladimir Lisin’s NLMK, Roman Abramovich’s Evraz, Victor Rashnikov’s MMK, and companies owned by coal magnates Iskander Makhmudov, Andrei Melnichenko, and Gavriil Yushvaev. Companies belonging to oligarchs named on the Kremlin list own practically the entire volumes of iron ore and ferrous metals that are transported on transit through Ukraine by rail. In the case of transit coal, the situation is somewhat different because the proportion of companies facing potential sanctions is about 14%. In general, the total volume of transit cargo originating from the "toxic companies” is about 6 million tons or 36% out of the 16.6 million tons of Russian cargo that is transported by rail on transit through Ukraine (2017 figures).
Export cargoes
Some of the oligarchs on the "Kremlin List" have assets in Ukraine. Potentially, they could also face sanctions from the United States. For example, Roman Abramovich’s Evraz group owns the Evraz Dniprovsky Iron and Steel Works (Dnipro), which exports about 1 million tons of metal products annually.
Export of crushed stone to Russia could also be affected by sanctions because the Russian companies that own the railway wagons used to transport crushed stone and those that buy the crushed stone face the risk of sanctions. Shipments of crushed stone to the Russian Federation reduced significantly last year due to changes to licensing rules, but it still accounted for a significant part of export cargo (about 1.5 million tons).
Theoretically, the Mykolaiv alumina plant may come under sanctions. Oleg Deripaska’s RUSAL company (Russia) announced the sale of the plant to Glencore in October 2017. It is still unclear whether the deal has been completed and whether RUSAL will retain some shares in the plant. The Mykolaiv alumina plant exports all its products to Russia. Its exports total about 1.5 million tons per year. It is noteworthy that the RUSAL company has excluded the Ukrainian plant from the list of its assets on its website, but Glencore has not yet included it on the list of its assets.
Two cement plants belonging to the Eurocement group – the Balakley cement plant (Eurocement Ukraine) and the Kramatorsk Cement Plant-Pushka – could also face sanctions. However, potential sanctions are unlikely to affect these enterprises because they focus on the domestic market.
