Reed Smith highlights complexities of current Russian sanctions rules

Law firm Reed Smith has advised clients that “the onset of conflict in Ukraine saw businesses scramble to understand and navigate the rafts of new international sanctions which were rapidly introduced by individual states and international bodies”

Hyun Woo Kang from Reed Smith said that “alongside the challenge of sanctions, the world has felt the further impacts of the war. Disruptions to grain exports led the UN to announce at a recent Security Council meeting (SC/14894) that the ‘global food crisis already impacted by the Covid-19 pandemic and climate change, is being driven to famine levels worldwide by the war in Ukraine’. Global car manufacturing has also suffered set-backs because a key component – electrical wiring – is made in Ukraine.”

He noted that “businesses lucky enough to have avoided any direct consequences of the conflict so far should remain vigilant. The global landscape has changed in many ways. Korean shipbuilders recently agreed to an 8% increase in steel plate prices as a result of higher steel prices. This has delayed their anticipated return to profitability despite increased orders and higher prices for new ships.”

He noted that “against this backdrop, risks may lie in existing contracts (particularly those signed before February 2022) which demand future performance.”

Reed Smith therefore advised clients to check:

  • whether the contract had been signed before February 2022
  • whether the contract required future performance by a party
  • whether there were elements of the contract in which a party stands to suffer as a result of the new economic landscape (e.g. pricing of raw materials).
  • whether the contract contained any provisions which allow for adjustments in price to take account of fluctuating global markets or other changing circumstances

The writer concluded that “many markets are feeling the effects of the conflict. Charter rates have been sky-high but are expected to soften. Bunker prices have been pushed up. Shipping and other commercial contracts concluded some time ago and filed away for safe-keeping, but requiring ongoing performance, would benefit from a fresh look to understand where any enhanced, or completely new, risks may lie.”