Ukraine: What does the Russian Invasion mean for UK Businesses?
Almost four weeks into the Russian invasion of Ukraine, the UK is already seeing the effects on daily life – even if we are geographically far removed. The price of petrol and diesel have, for instance, quickly spiked as a direct result of the raft of sanctions imposed on Russia by the West.
The CBI recently commented how “further unwinding from Russian interests is more complicated than many believe and will take more time – revealing how connected western economies are to Russia”. Many businesses have already withdrawn from Russia – Ikea, Disney, McDonalds, Starbucks, Heineken and L’Oreal, to name just a few.
But many other businesses cannot simply stop doing business with Russia because of, for instance, their existing supply chains and ongoing contractual relationships. It is critical to take expert commercial legal advice to protect your interests if you are concerned about stopping business operations in or with Russia.
Challenges
It’s not just about Russian exports and businesses operating in or supplying to Russia – Ukraine itself is a major exporter to the UK of iron and steel, cereals, maize and vegetable oils. It’s not difficult to see the impact the war will have on food, milk and meat producers in the UK and sectors who have relied on the country’s iron and steel.
The CBI has suggested that businesses may have to shift production elsewhere and the Institute for Government says that though the UK “has few direct economic links to Russia”, we will see a significant impact. Some sectors will be disrupted more than others.
· Increased energy costs – livings costs and business costs are likely to increase as the UK ceases to be reliant on Russian mineral fuels.
· Some businesses need to anticipate and plan for logistical disruption to supply chains and associated cost increases.
· CO2 and the cost of aluminium will cost more as the price of commodities goes up. For example, the Institute for Government points out that in 2020, Russia produced 43% of the world’s palladium, an essential component of catalytic converters in cars.
· Payments for international transactions will be more difficult in the face of financial sanctions (removal of Russian banks from SWIFT, for instance).
· Cyber security needs to be forefront in the priorities of many business leaders. The UK’s National Cyber Security centre warned businesses to be on high alert for a major Russian cyber-attack, though it yet to materialise. Every business needs to ensure they are cyber resilient ahead of a potential attack.
· Business investment could be negatively impacted by the invasion. The CBI has said the government does need to offer help in stimulating investment in order to build on UK growth.
We’ve seen in recent times how unexpected events (covid-19) can prompt a fast and effective change to normal businesses activities.
UK businesses are resilient, though smaller businesses in certain sectors may find it more challenging to weather the impact of the war. Taking specialist commercial legal advice before reacting to the challenges will be a prudent first step.
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