Brazil-Russia: What to Expect

SÃO PAULO – One of the consequences of this unexpected war declared on Ukraine is that the sanctions imposed on Russia by countries that are part of the North Atlantic Treaty Organization (NATO) and the European Union (EU), especially the United States, England, France, and Germany, can make it difficult to grant letters of credit to exporters and importers, significantly affecting foreign trade. After all, without the granting of letters of credit, both Brazilian and Russian companies lose security in conducting their operations.

This is because, similar to what happened in the past when Iran’s financial institutions were suspended from the SWIFT network at the request of the United States, the same now applies to Russia, whose banks were removed from the system following the invasion of Ukraine. SWIFT, it should be noted, is a messaging system developed in the 1970s to replace the old reliance on telex machines and standardize messages between banks regarding transfers of values between them, value transfers to clients, and orders to buy and sell assets.

It is called SWIFT because it is an acronym for the Society for Worldwide Interbank Financial Telecommunication, an entity founded in 1973 in Brussels by 239 banks from 15 countries with the aim of standardizing international financial transactions. Today, more than 11,000 financial institutions use the system in over 200 countries. Therefore, being excluded from this network is equivalent to being cut off from the world.

In other words, if this payment system stops working, it becomes unfeasible to conduct commercial operations with Russian companies. Even cargoes that have already been shipped can be detained longer in Brazilian ports until the importing company manages to get the money to the Russian exporter.

Although Russia accounts for only 0.6% of the total sales of Brazilian products abroad, the bigger problem lies in Brazil’s importation of fertilizers. In 2021, this type of product represented 62% of the purchases made by the country from Russia, reaching the figure of $3.5 billion, with an increase of 98% compared to the values of 2020. As a major producer in agribusiness, Brazil depends on fertilizers from Russia and Ukraine and does not have an alternative market, for now.

Moreover, the shortage of fertilizers and other inputs can lead to imbalances, causing a spike in food, oil, and natural gas prices, as is already happening. In addition, without fertilizers, agribusiness productivity is affected, and there will be fewer products to export to all countries. As more than 60% of everything transported in Brazil depends on fossil fuels, the country is likely to be one of the most indirectly affected by this war.

On the other hand, if the Brazilian government aligns itself with the nations advocating sanctions against Russia, it will undermine all the effort made in recent times to open the Russian market to Brazilian products. Unless trade with Russia begins to be intermediated by China, which is not surprising since before the Winter Olympics, President Vladimir Putin held talks with his Chinese counterpart.

According to data from the Secretariat of Foreign Trade (Secex) of the Ministry of Economy, in 2021, Brazil purchased products from Russia totaling $5.7 billion, registering an increase of 107% compared to the values of 2020 when purchases reached $2.7 billion. And the expectation, before the crisis between Russia and Ukraine, was that this value would double this year.

Russian purchases of Brazilian products in 2021 reached a total of $1.6 billion, including soy, poultry, coffee, peanuts, sugarcane, and equipment such as mechanical shovels, excavators, wheel loaders, compressors, and others. As a result, Russia ranks 36th in the ranking of Brazilian exports. Efforts made by entrepreneurs and the Foreign Ministry so far aimed to increase the sales of Brazilian products to that country.

According to a study by the Institute of Applied Economic Research (Ipea), conducted in 2021, the economic rapprochement between Brazil and Russia could increase national exports to the Russian market by $261 million, representing a 17% increase. Obviously, in the face of the Russia-Ukraine war, this forecast is compromised. In any case, the hope is that this crisis will be overcome soon, and foreign trade, in general, will not be so affected.

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Liana Lourenço Martinelli, lawyer, postgraduate in Business Management and International Trade, is the Manager of Environmental, Social, and Corporate Governance (ESG) at the Fiorde Group, consisting of Fiorde International Logistics, FTA Transport, Warehouses, and Barter International Trade. Email: lianalourenco@fiorde.com.br. Website: fiorde.com.br.

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