Banks have been shutting the doors on those asking for letters of credit (L/Cs) for trade with Russia in the wake of a bewildering array of sanctions imposed on the country since Moscow commenced its military action in Ukraine.

The decision to bar seven Russian banks from the Swift messaging platform may have accelerated the process of banks worldwide refusing L/Cs for Russia, but many financial institutions had already started to shy away from Russian business.

Meanwhile, for as long as Russia continues its aggression in Ukraine, banks will remain fearful that yet more sanctions carrying tough penalties for those that breach them will be imposed on yet more Russian elite individuals and officials, state entities and their subsidiaries, and financial institutions.

Asian perspectives

Singapore's biggest banks, including DBS, Overseas-Chinese Banking Corp and United Overseas Bank have stopped issuing L/Cs for Russian energy deals for fear of breaching sanctions according to the Bloomberg news agency.

Foreign minister Vivian Balakrishnan meanwhile has told parliament that Singapore "intends to act in concert with many other like-minded countries to impose appropriate sanctions and restrictions against Russia."

South Korea, which like most countries in the region rarely pushback against Moscow, has said it will join other countries in blocking some Russian banks from the Swift messaging platform and boost aid to Ukraine.

China

Chinese coal importers are scaling back imports of Russian coal as they struggle to secure financing from state banks worried about potential sanctions according to the Reuters news agency.

It cites a China-based trader dealing in Russian saying "[m]ost banks have stopped issuing letters of credit after the Swift sanctions. As almost all contracts are dollar-denominated, we have no other way to make the payment." Other traders are reportedly in discussions with Russian exporters about paying with the Chinese currency for the first time.

Europe and India

Societe Generale and Credit Suisse Group have stopped financing commodities trading from Russia, Bloomberg has reported. The news agency also says ING is amongst other European banks lowering their exposure, with some restricting the issuance of L/Cs against Russian cargoes.

State Bank of India has said it will not process any transactions involving Russian entities subject to international sanctions imposed on Russia, according to Reuters.

The difficulty of financing transactions is not the only factor restricting trade with Russia. One of India's top refiners, Indian Oil Corp, says it will no longer accept cargoes of Russian crude on a free on board basis due to insurance risk.

Resembling Iran

Several commentators and executives fear sanctions imposed on Russia may start to resemble those on Iran. It was eventually subject to secondary sanctions, which entail restrictions on any entity that does US dollar business with the underlying sanctioned entity.

This would substantially expand the number of restricted entities and also affect countries that have not yet joined the burgeoning list of states to impose or support sanctions on Russia.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.