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Russia’s unprovoked invasion of Ukraine in February of 2022 prompted one of the quickest global responses to date with the rapid imposition of trade-related sanctions. Beyond the battlefield, this is a war of economic attrition. Led by the European Union (EU) and the United States, countries opposing the invasion aimed at Russia’s key industries, depriving their manufacturing, energy, and banking sectors of the suppliers, customers, and access to the international payment system required to operate at anything close to normal levels.

The economic impact of the sanctions has caused substantial financial losses and hindered Russia’s military operations and its ability to manufacture new weapons and munitions. Moreover, the sanctions have changed how the world does business with Russia. One key, but unfortunate outcome of these restrictions, was the decision by the EU to sanction Russian oligarchs who owned Russia’s significant fertiliser manufacturers.

Because Russia is the world’s largest exporter of fertilizer and fertilizer precursors, the U.S. had avoided sanctioning these individuals because doing so would automatically cause their companies to fall under sanctions depriving the world market of essential fertilizers and driving already high fertilizer prices yet higher.

Unintended Disruption Fueled By Business Risk.

The EU was not as selective when drawing up its list of sanctioned Russian nationals, which led banking, shipping, and insurance companies to refuse to transport Russian fertilizer to third countries for fear of running afoul of EU sanctions. This has led to significant disruptions in agricultural supply chains, especially in the developing world.

Specializing in nitrogen and potassium fertilizers and precursors, many countries, including Europe and the U.S., rely on Russia’s fertilizers to meet the needs of their grain farmers. The withdrawal of this essential agriculture commodity has driven prices higher, leading to reduced fertiliser use and lower yields, thereby causing global grain and food prices to increase.

Since sanctions on Russia’s fertilizer producers began in the spring of 2022, global fertilizer prices have risen by at least 30% (after skyrocketing by 80% in 2021). The sanctions have significantly disrupted the ability of Russian fertilizer companies like EuroChem, PhosAgro, Acron Group, and Uralchem to export their products, driving up world fertilizer prices and reducing their supply.

A few months after official trade rules were established, the EU issued updates and clarifications to the sanctions, which appear to give banks, shipping companies, and insurers the ability to facilitate the sale and transport of Russian fertilizers to third countries without violating sanctions. However, the uncertainty of varying and new interpretations of how the EU is sanctioning Russian fertilizer business magnates has left many western companies reticent to facilitate the exportation of Russian fertilizers and precursors, leaving fertilizer prices high and supply chains continually disrupted, especially in the developing world.

Russian Fertilizer Production Cannot be Easily Replaced.

EU sanctions, while intended to make the oligarchs on whom Putin relies feel the pain of his reckless and immoral actions toward Ukraine, have inadvertently driven up food prices worldwide, causing consumers and citizens of both developed and developing countries to suffer the consequences.

Given that Russia possesses some of the world’s largest deposits of natural gas and potash, essential to the production of nitrogen and potassium fertilizers, we cannot expect fertilizer producers in other countries to replace lost Russian exports in the foreseeable future. This leaves the EU with few options other than to untie the knot it has created in the world’s fertilizer supply chain by rescinding actions already taken against the property of Russian fertilizer producers and reassuring intermediaries that they can facilitate the sale and export of Russian fertilizers and precursors without fear of violating EU sanctions.

To Avoid Business Disruption, Compliance Assessment is Crucial.

Sanctions cause uncertainty for all parties. Even when there is a clear policy statement in place, it takes a long time for companies to resume business, which can wreak havoc on agricultural supply chains. This is where taking on expertise in foreign policy and sanctions risk assessment and compliance is becoming a critical component of global business practices.

You don’t need an almanac to forecast how even local food supply chains are affected by disrupted world fertilizer markets and significantly increased fertilizer prices. To understand and manage risks related to trading sanctions, agriculture manufacturers and those involved in the entire supply chain (shipping, insurance, banking, etc.) need to regularly engage with foreign policy and sanction risk and compliance experts to get vital agricultural inputs where they need to go promptly without fear of violating trade sanctions.