The Russia-Ukraine escalation: regional and business implications

Marek Matraszek, CEC Group’s Chairman; Vasyl Myroshnychenko, Partner, CFC Big Ideas; Alexander Smotrov, Practice Lead for Central and Eastern Europe, Global Counsel; and Rebecca Park, Senior Practice Lead, Financial Services, Global Counsel, investigated the potential regional implications of the current crisis and provide insights and outlook for domestic and international businesses operating in Ukraine, Russia and their neighbouring countries.

Highlights from the discussion:

• While Ukraine faces direct economic hits, the crisis’s secondary effects on Poland are substantive. Ukraine seems to be much better prepared for the economic shocks than in 2014, but the immediate risks for supply chain routes going through Ukraine remain high, with Russian military drills in the Black Sea able to block Ukraine’s sea ports and new cyberattacks possibly targeting the country’s state banks and critical infrastructure. For Poland, the immediate knock-on effect, especially in a Russian incursion scenario, might be the increasing loss of investor confidence in the Central and Eastern Europe region as well as a rising rate of Ukrainian migrants or refugees.
   
• Europe’s divided sanctions stance means they are unlikely to hit where they hurt most. Poland and other Central European countries, who have been leading the EU debate on sanctions in close coordination with the US, hope that sanctions will target Russia’s financial sector and introduce restrictions on semiconductor imports from the West, hitting its prospects to weather possible sanctions storm despite the sizeable foreign currency reserves built up over the years. Meanwhile, France’s and Germany’s more tentative approach, also on whether to cancel the Nord Stream 2 gas pipeline as part of the sanctions package, make Europe more susceptible to Putin’s strategy of sowing discord on a unified stance on Russia.
   
• The countries affected aim to both mitigate risks and extract possible opportunities from the crisis’s long-term political impacts. Poland, which is facing parliamentary elections in 2023, is wary of possible Russian countersanctions, such as a squeeze on energy supplies to Europe. Ukraine hopes that the support expressed by Western capitals in recent weeks could be translated into actual investments into its government’s political and economic reform agenda, which would better its EU and NATO membership prospects. Although Russia’s belligerence towards the West is seen as part of its ‘pivot to Asia’ strategy, despite an apparent rapprochement with China, this is unlikely to translate into any substantive economic cooperation, as Russia remains too closely aligned with the Western economies.