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The US and UK have launched a crackdown on Russia's mineral trade, in a move aimed at limiting Moscow's export revenues and restricting its ability to finance the war in Ukraine.
The action, announced by the two countries on Friday, represents an aggressive effort by allies to hurt Russia's income, but could disrupt trading on exchanges including the London Metal Exchange and the Chicago Mercantile Exchange.
“Our new ban on base metals, in coordination with our partners in the UK, will continue to target revenues that Russia can earn to continue its brutal war against Ukraine,” US Treasury Secretary Janet Yellen said.
She added that the United States and the United Kingdom are “taking this action in a purposeful and responsible manner” in order to protect “our partners and allies from unwanted impacts.”
This measure will affect trade in aluminium, nickel and copper. Russia has made $40 billion in mineral sales over the past two years while fighting in Ukraine, officials said.
The United States and its allies were wary of imposing sanctions on the Russian metals sector at the start of a full invasion of Ukraine in 2022, for fear of disrupting global commodity markets.
The move against Russian metals comes in the wake of a G7 campaign to limit Moscow's revenues from crude and petroleum exports, including by capping prices for seaborne oil trade that includes Western shipping services.
It includes a ban on imports of metals of Russian origin to the United States. It also prohibits the provision of collateral services for minerals and prohibits services to acquire minerals as part of the physical settlement of a derivative contract.
The London Metal Exchange and the Chicago Mercantile Exchange will not be able to trade any new Russian aluminum, copper or nickel.
A US Treasury official said: “We are confident that metals of Russian origin will not find their way to these exchanges.” Trades made under bilateral contracts will not be affected by the step taken by the US and the UK.
Russia supplies about 6 percent of the world's aluminum, 5 percent of nickel, and 4 percent of copper, according to CRU Consulting Group.
The United States and the United Kingdom have already imposed sanctions on several Russian metal producers, but Friday's move is the first time they have imposed a comprehensive ban on the trading of certain Russian metals on the world's largest metals exchanges.
Previous resistance to the Russian metals ban stemmed from fears of new disruption to European industry and the possibility that Moscow would retaliate by cutting off supplies of palladium, which is crucial to the region's auto industry.
Large stocks of Russian metals are accumulating in London Metal Exchange warehouses, raising concerns that the surplus could distort the market.
For example, more than 90 percent of aluminum stocks on LME sites are Russian, according to the exchange's latest data. The two countries said these existing stocks would not be affected by the sanctions in order to “minimize risks to market stability.”
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Because of these concerns, the London Metal Exchange, the world's largest metals market, has reviewed its Russian metals ban in 2022, but said it will ultimately be guided by government sanctions.
Officials claim that the measures will not raise the prices of metals affected by the ban.
“We understand from our consultations with a lot of market participants in the industry that their view is basically that a lot of these [metals] “We have a surplus,” a US Treasury official said, adding that they did not expect these measures to affect US consumers or producers.
The London Metal Exchange said in a statement that it will issue guidance to the market by 11 a.m. on Sunday on how British legislation will affect the placement of Russian metals on the exchange.
