Vietnam’s exports to Russia hampered by Western sanctions

Phan Minh Thong, general director of Phuc Sinh, has spent the last few days contacting customers in Russia and Europe to deal with order and transaction delays.

Yearly, the company exports around $30 million worth of coffee, pepper and other produce to Russia. But when Russia attacked Ukraine last month, followed by Western sanctions, Phuc Sinh’s export orders were suspended.

After certain Russian banks were blocked from the SWIFT payment system, orders to Russia saw their value drop by half due to devaluation of the ruble and delayed transactions.

Thong said his partners in Russia and Europe are facing similar problems due to the sanctions. And in Vietnam, Thong is hardly alone in facing these difficulties.

Another company that exports fruits and vegetables to Russia has also had to suspend its orders due to logistical difficulties, according a representative. Export vouchers to Russia have also been denied by banks as Vietnamese banks and their partners use SWIFT.

“International logistics firms were all unable to receive goods, while flights to Russia are limited. Orders are delayed and payments are impossible,” said the representative.

Vietnam exports to Russia hit around $3.2 billion in trade value and imports around $2.3 billion in 2021, according to customs data.

Main exports to Russia include computers, components, phones, textiles, coffee and electrical products.

As for Ukraine, while its trade turnover with Vietnam is under $1 billion, the country has always been a traditional commercial partner in the region. In 2021, trade turnover between the two countries reached $720.5 million, an increase of 51 percent from 2020. Main exports to Ukraine are computers and shoes, among others.

Vietnam would experience impacts on its production, trade, logistics and payments amid the sanctions, according to European-American Market Department under the Ministry of Industry and Trade. Business cooperation with Russia, Ukraine, Belarus and other relevant markets would also be affected.

“This crisis is having comprehensive and negative impacts, both in the short and long terms for the economy, commerce, finance and global supply chains,” said the department.

The first things to be impacted would be the supply of fuel and raw materials, with the crisis being one of the main factors for price hikes of oil and gas, flour, aluminum, nickel and corn as major products of both Russia and Ukraine.

Commercial contract payments with Russia would also be difficult due to Western sanctions, which has also caused the devaluation of the ruble. Several Russian exporters have proposed to suspend payments for about two to three weeks to see how the situation would develop.

Some shipping companies have refused to deliver goods from Vietnam to Russia, while transportation fees rise with further delays in transportation.

The sanctions on air transportation also forced airlines to choose alternative flight routes, increasing costs and burdens on global logistics systems as well as product prices. Several businesses have stated increased transportation costs may leave them without profit.

The devalued ruble would also hamper Russia’s export capabilities and force its businesses to reconsider their strategies.

Vietnam and Russia’s bilateral commerce would be unlikely to evade negative impacts if the West decide to step up sanctions, the department noted. Businesses exporting products to both countries should be in touch with their import partners regarding payments and deliveries, it cautioned.

Thong said businesses trying to export to Russia should just sell their products in other markets instead. The department urged companies to make use of free trade agreements between Vietnam and other countries to maximize gains and diversify markets.

At a cabinet meeting last month, Prime Minister Pham Minh Chinh has directed a special team to respond to impacts posed by the Russia-Ukraine conflict.