UK Businesses Dissatisfied With Sanctions As Foreign Investors Also Lose Trust In The Rule Of Law

In 2019, the UK sold £2.13 billion of services to Russia. Now it sells quasi-smuggled sausages to pubs, while potentially sanctions exposed foreign investors stay well away.

By Chris Devonshire-Ellis  

Numerous British companies are dissatisfied with London’s sanctions policy against Russia, a member of the House of Lords of the UK Parliament has stated to Izvestia, Russia’s equivalent to the Financial Times.

However, this criticism of UK Government policy is largely kept from the public eye due to potentially violent political and social media repercussions. Instead, they quietly look for ways to circumvent the restrictions, including by trading through subsidiaries in other countries that re-export to Russia such as Armenia, Georgia or Kazakhstan. Yet despite this on-going, sanctions evading supply and demand, and obvious benefits both to UK employment and taxes, there is no discussion of the prospects for easing anti-Russian sanctions in the British Parliament.

This topic, according to politicians, is shrouded in a veil of silence. Accordingly, UK businesses in private sense that it is not worth waiting for any change of course in London, at least until the parliamentary elections during 2024.

In 2021, Russia’s conflict with Ukraine began, followed by unprecedented sanctions of the collective West against Moscow. During this time, 11 EU restriction packages were adopted, with a large number of restrictive measures being introduced by the US and partners, including the UK.

However, as a result, and contrary to Western expectations, it was not only Russia that was impacted, but also the initiators of the sanctions pressure themselves. According to the analysis of the UK’s Financial Times, European, including UK, MNCs suffered losses in the Russian market of at least €100 billion since sanctions were imposed. The publication emphasised that 176 companies recorded “asset impairment, currency exchange costs and other one-off expenses as a result of the sale, closure or reduction” of business in Russia. The largest losses were incurred by energy companies. Three major oil and gas corporations – British BP, Shell and French TotalEnergies lost a total of €40.6 billion. Part of that is UK taxpayers money.

These losses do not include additional operational expenses incurred by the higher cost of manufacturing due to increased energy costs, a total loss of future market revenues, significant inflation, and a dramatic slowdown in GDP growth. In the UK, Q2 2023 GDP growth is currently at 0.2%, narrowly avoiding a recession, while June’s inflation rate was 7.9%, and the UK Purchasing Managers Index ranked at 45.3. Any figure lower than 50 indicates a decline in manufacturing.

In comparison, the Russian economy is doing rather better. Its Q2 2023 GDP growth came in at 4.9%. Inflation in June was 3.3% while its PMI figure reached 52.6, indicating expansion.

Not surprisingly, concerns are arriving from British industry figures. Richard Balfe, a member of the House of Lords of the British Parliament, told Izvestia that “A number of companies are dissatisfied, but they are not saying much publicly, they are just looking for ways to circumvent the sanctions.”

One way, he said, is to trade through subsidiaries located in countries with more relaxed views on Russia. In fact, this includes all of the Caucasus, Turkiye, and much of Central Asia in addition to larger economies such as India and China.

Meanwhile, the London Times, citing trade data, reported in July that London, despite its anti-Russian statements, has not prohibited its manufacturers from exporting mining and fossil fuel extraction equipment to Russia. This included Hill & Smith, which said in a report last year that it had no direct links with Russian customers. Nevertheless, one subsidiary, Bergen Pipe Supports (India) Private Limited, continues to supply pipe supports for securing gas pipelines to Russia’s Arctic LNG-2 project. But those figures are contained within the export figures to Russia from India, and not from the UK. In such a manner, the source of the trade decisions being made are kept away from being seen as British direct involvement.

Impact of UK Sanctions  

Despite the best efforts of Western capitals, the impact of the restrictions on Russia is not as significant as their initiators had expected. Lord Balfe again commented saying that “My friends in Russia tell me that the consequences are not as serious as the British and US governments claim,” adding that the sanctions issue is “shrouded in a veil of silence”. According to Lord Balfe, no discussions concerning any evaluation of sanctions measures against Russia are being discussed in the UK Parliament at the moment. The issue is simply not on the political agenda.

Kira Godovanyuk, a leading researcher at the Centre for British Studies at the Institute of Europe of the Russian Academy of Sciences has stated a reason why, suggesting that “Any evidence that the government is somehow softening its tone towards Russia will mean that they agree that they were wrong. At the moment, no MP will risk touching on this topic, as it is a fundamental point in the foreign policy of the United Kingdom. Such speeches can undermine the reputation of the MP himself.” That is an issue to ponder given that 2024 is a crucial year with UK elections due.

This also means it is unlikely there will be any changes in current policy towards Russia. Instead, the UK is now lobbying most actively for tougher measures against Moscow, and no adjustment is possible at this stage. Any discussions concerning the easing the sanctions may be raised in Parliament, but only when the anti-Russian political and media agenda dries up.

This seems unlikely to happen as all Western governments are saying that their main goal is for Russia to lose in Ukraine, and sanctions pressure is one way to achieve this defeat. In July, the UK Foreign Secretary James Cleverly was emphasising that the sanctions were designed to increase economic pressure on the Russian leadership in response to the situation in Ukraine.

Moscow though is not indifferent. On August 8^th, Russian President Vladimir Putin signed a decree suspending certain provisions of the double taxation agreement with unfriendly countries. The list included the UK, and increases the tax burden for British companies continuing to trade with Russia, It also impinges on the ability to fund elderly or sick relatives either in the UK or Russia as well as imposing higher tax burdens on educational and medical fees. This affects the 49,000 estimated Russian nationals in Britain who are feeling increasingly marginalised by the UK governments attitude towards them – and their relatives back home, in addition to the estimated few thousand Brits remaining in Russia. That should be a humanitarian issue, not a political one.

On the same day, London decided to expand the blacklist by adding 22 more individuals and legal entities outside Russia that have been involved in breaking the UK’s sanctions. These included two Turkish firms (Turkic Union and Azu International) Aeromotus Unmanned Aerial Vehicles Trading, based in Dubai (UAE), as well as Iranian citizens and companies, Belarusian defence organisations, as well as Slovakian and Swiss nationals. It is unclear how future diplomatic relations will continue in Dubai and Turkiye with British interference in what their trading companies see as firstly, a European conflict and secondly, interfering in their fundamental right to trade and take on that risk assessment themselves.

In terms of Russia, the UK sanctions list was expanded to three further Russian firms for their role in buying Western products subject to UK sanctions. In total, more than 1,500 Russian nationals have been sanctioned by the UK since February 2022. That is on top of Russian assets, such as private houses, yachts, bank accounts and other personal properties worth £26 billion being frozen in the UK. As with other Western countries, London is looking for legal ways to confiscate and then sell them, without recourse to the legal owners and send the funds to Ukraine. Moscow has called such actions ‘theft’.

Ordinary Russians though, both those impacted by sanctions and those impacted by general harassment such as non-provision of visas and an unwelcoming attitude, are starting to feel victimised, and especially by the UK. That attitude is now affecting how average middle-class Russians view the status of the British Rule of Law, which has seen promises made as concerns individual rights only for these to be batted away without recourse to due process, an independent judiciary or any arbitration.

With this concept now apparently spreading by the UK to other, third party countries, the mistrust of Britain is sadly growing at a time it really needs more friends. It will also be a long time before not just Russians, but other foreign nationals from countries with a changeable political relationship willingly park their money in the UK. Those days of investment and overseas reliance on a fair rule of law have been irreparably damaged. To illustrate this, UK tech FDI projects were down 32.2% in 2022, while London recorded 299 FDI projects in 2022, down 24% from 394 in 2021, marking the capital’s lowest number of projects in the last ten years. According to the Evening Standard, London’s luxury house market has declined in value by 15% over the past two years.

The cancellation of the Commonwealth Games in Australia is symbolic of the UK’s overall recent demise. Brexit has seriously damaged relations with the European Union, a problematic colonial legacy exists in Africa, the Caribbean and elsewhere, London has very poor relations with Beijing, isn’t negotiating an especially useful trade agreement with India, and is turning Russia and its friends away. When Britain apparently feels it can sanction companies in Turkiye and Dubai, the UK’s actions will ultimately result in very little international support and an even smaller manufacturing industry to protect.

Is the UK becoming a sausage republic?  

Emblematic of this is the ‘Black Chops’ British Pub that has just opened up on the Fontanka Canal in St.Petersburg. Despite sanctions, it sells British ales on draft, has Colman’s mustard, Worcestershire sauce and British sausages on the menu, all sent in from Yerevan. The UK, as seen from the Russian perspective, has descended into the realms of an English version of an Irish Pub – all quasi Constable print pastoral nostalgia coupled with faux Land of Hope & Glory and Premier League nationalism.

That’s quite a drop from 2019, when the UK sold services worth £2.13 billion. Now the UK sells pub condiments and processed foods. It is an undeniable decline. British exporters have to act as quasi-smugglers and tell white lies to cover up the reality. The good Lord Balfe’s questioning of the wisdom of all this is, however, almost certainly rather too little, too late. But what incredible damage the sanctions have caused.

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