Management of sanction mechanisms introduced by G7 countries on Russian precious metals flow in the context of the war in Ukraine – February–June 2022

Abstract

This article offers an in-depth look at the impact of sanctions on precious metals flows from Russia. At the same time, it attempts to answer questions on the effectiveness of the sanction mechanisms. This article begins by contextualizing the events. The macroeconomic conditions and market events taking place in 2021 and earlier are noted. These impacted on the stability of logistics and commodity flows. As a result, there was market tightness and local shortages or delays. In addition, price movements of precious metals are presented along with an explanation of what fundamental factors caused markets to price these assets in such way.

The subsequent part of the article describes extreme price movements in precious metals in response to the outbreak of war in Ukraine. This is done with reference to palladium, whose price movements were the strongest. Later in paper, the author focuses on the price movements and flows of the spring period, when it was known that the war would not end in an immediate Russian victory but would develop into a long-term conflict. This was a period of increased investment purchases, which weakened over time. In this context, an analysis is made of the flows of Russian gold into the London metal markets. At the same time, reference is made to the effect of the first sanction mechanisms implemented by the UK and the European Union and the attempt to stabilise the rouble with gold. However, outrage at the Russian made onslaught also affected the precious metals market. The result was a bottom-up ostracisation of Russian-originating metals by the precious metals markets in London and USA. However, Russia’s position as a supplier of metals is very strong, and therefore this type of action is problematic to execute in the palladium and platinum markets, especially in regards to the potential impact on the automotive sector. The conclusion indicates that the first months of the war took the Russian side by surprise and Western governments implemented sanctions quickly. However, these not only hit the finances of the Russian Federation but also, indirectly, the European industrial sector that has been plagued for several years by rising costs and problems sourcing components.