Sanctions On Russia Come Back To Bite Their Issuers

 March 02, 2023

Sanctions On Russia Come Back To Bite Their Issuers

Unlike 'western' politicians I try to think ahead of the consequences certain foreign relation policies might have.

On March 9 2022 I predicted:

The Sanction Backlash Will Push The 'West' To Accept Russia's Demands

For years the U.S. committed policies that have left a lot of countries grumbling. Now, as the U.S. needs support to milden the consequences of 'punishing' Russia, those policies come back to bite. So will the secondary effects of sanctions the 'west' has imposed on Russia. 
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The first [map] shows the countries which banned Russian airplanes from their airspace. Russia in turn denied its airspace to operators from those countries. It will cost quite a bit for U.S. and EU airlines as their flight times and cost to and from Asia, which typically fly through Russian airspace, will now increase. Carriers from Asian countries will now easily out-compete U.S. and European airlines on these routes.
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A year later the Financial Times and Fortune finally wake up to the issue:

Airlines say Chinese carriers have an ‘unfair advantage’ as China reopens: They’re allowed to fly over Russia

“If you’ve got a Chinese carrier that is flying over Russia, they’ve got an unfair advantage over us,” Ben Smith, CEO of Air France-KLM, told the Financial Times on Friday. Smith complained that skipping Russian airspace added “three hours in flight time” for a plane traveling from Paris to Seoul. 

Before Russia’s invasion of Ukraine, airlines often flew over Russia to connect Asia with destinations in Europe or North America. But Russia barred many Western airlines from using its airspace last February, in retaliation for governments in Europe and North America banning Russian airlines from flying over the West. 

European, Canadian and U.S. airlines are thus forced to fly different routes to avoid Russia. Longer flights burn more fuel, meaning higher costs and emissions. Longer flights can also upend tight flight schedules, as well as breach limits on working hours for flight crew.

Yet carriers from several non-Western countries, including China, continue to fly over Russian airspace, allowing them to offer faster and cheaper flights to European and North American destinations. 

European airlines are now worried that they’ll lose out on the wave of Chinese rebound travel, as Beijing reopens from years of COVID-era isolation. (Chinese tourism plummeted after the country required all international arrivals—including returning Chinese tourists—to spend weeks in quarantine.) 

“It will be very hard to make secondary cities of China profitable in terms of flying,” Topi Manner, CEO of Finnair, said to the Financial Times last week. The closure of Russian airspace has hurt Finnair, kneecapping an effort by the airline to turn Helsinki as a hub for flights connecting northern Asia with Europe. 

These were Finnair's most profitable routes before the country sanctioned its flag carrier from using them:

Alex Macheras @AlexInAir - 11:09 UTC · Feb 27, 2022

Finland and Russia have an agreement with guarantees Finnair 80+ round trip flights per week over Siberia, and it’s this Russian overflight gives Finnair 🇫🇮 the “shortest route to Asia” which is quite literally their core biz/USP/their moneymaker/their everything.

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This one was easy to predict. The government of Finland, which owns the majority of Finnair's stocks, has quite a loser in its hands:

Long term investing is the way to go, but that doesn't mean you should hold every stock forever. We really hate to see fellow investors lose their hard-earned money. Anyone who held Finnair Oyj (HEL:FIA1S) for five years would be nursing their metaphorical wounds since the share price dropped 95% in that time. And the share price decline continued over the last week, dropping some 6.4%.

It is funny how it is now 'unfair' that China's carriers are still allowed to fly over Russia. Who please introduced that unfairness?

Hint: It was not China or its airlines.

Here is a current British Airways flight from London to Hongkong. The route looks a bit curious doesn't it?

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This is the ideal route between London and Hongkong. It is the route BA was flying before the British government put sanctions on Russian air carriers.

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Yes. The higher price tags and longer flights are totally 'unfair'. On wonders who could change that?

Don't fear for that. The sanction nonsense won't stop anytime soon:

The United States is sounding out close allies about the possibility of imposing new sanctions on China if Beijing provides military support to Russia for its war in Ukraine, according to four U.S. officials and other sources.

The consultations, which are still at a preliminary stage, are intended to drum up support from a range of countries, especially those in the wealthy Group of 7 (G7), to coordinate support for any possible restrictions. 
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It was not clear what specific sanctions Washington will propose. The conversations have not been previously disclosed. 
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The Biden administration's initial steps to counter Chinese support for Russia have included informal outreach at the staff and diplomatic levels, including the Treasury Department, sources familiar with the matter said.

They said officials were laying the groundwork for potential action against Beijing with the core group of countries that were most supportive of sanctions imposed on Russia after its invasion of Ukraine a year ago. 
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China's role in the Russia-Ukraine war is expected to be among the topics when Biden meets with German Chancellor Olaf Scholz at the White House on Friday. Before that in New Delhi on Wednesday and Thursday, the war will be discussed by foreign ministers from dozens of countries, including Russia, China and the United States. 
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As part of a related diplomatic push, Washington won language in a Feb. 24 G7 statement to mark the war's first anniversary that called on "third-countries" to "cease providing material support to Russia's war, or face severe costs."
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Among the challenges the United States faces in putting sanctions on China, the world's second-biggest economy, is its thorough integration in the major economies of Europe and Asia, complicating the talks. U.S. allies from Germany to South Korea are reticent to alienate China.

Anyway. We can be assured that Scholz and other dimwit 'leaders' will fall for this. They will ruin their countries before they dare to tell the U.S. to f*** off.

Let's hope that their voters will punish them for this.

Posted by b on March 2, 2023 at 6:56 UTC | Permalink

https://www.moonofalabama.org/2023/03/sanctions-on-russia-come-back-to-bite-their-issuers.html