Ukraine intends to officially block trade with occupied Donbas

Ukraine’s National Security and Defense Council, a top decision-making body, decided on March 15 to introduce a full trade blockade with the occupied districts of the Donetsk and Lunansk regions, collectively known as Donbas. The decision was prompted by the escalation of aggression on the line separating the occupied and government-controlled parts of Ukraine, as well as the seizure of Ukrainian enterprises on the occupied territories, said council secretary, Oleksandr Turchynov, in a press release that day.

The decision calls for stopping cargo movement across the separation line until a full ceasefire and heavy armaments withdrawal are implemented in line with the Minsk agreements, said Turchynov, who clarified that the ban will only affect freight traffic, while the movement of passengers and humanitarian aid will remain unblocked. Ukraine’s State Border Service confirmed that cargo transportation with the occupied districts of Donbas has been completely blocked as of 1 p.m. on March 15.

Besides that, the council decided to order Ukraine’s central bank to draft sanctions against Ukrainian banks that are subsidiaries of Russian state-controlled financial institutions. In a press release that day, the central bank confirmed it will ban all the financial transactions of Ukrainian subsidiaries to the benefit of their parent Russian banks.

Alexander Paraschiy: The council decision to fully block all trade with the occupied territories was a surprise to the public (even EU officials), given that its members (the president, central bank head, prime minister, interior minister) were actively criticizing the blockade of railway routes with the occupied districts that has been implemented by Ukrainian activists since February. As tensions reached their peak in recent days – with the government’s seizure of a blockade post prompting protests in various cities, including the Maidan – it’s possible the government has decided not to wage this battle anymore, lest it risk expending what little political capital it has left.

But there’s a catch. By law, any council decision can only be validated by an order from the Ukrainian president. As of 11:30 a.m. on March 16, there is no respective order on the president’s website, so all these rulings have yet to gain official status. So, at this moment, it’s not clear whether the council (and Ukrainian president) was serious about imposing this trade blockade, nor is it clear on what basis are the central bank and border service implementing a non-official decision. Moreover, the reason for the decision (the illegal seizure of Ukrainian enterprises) was not evident the morning of March 15 when the council’s decision was made (the holders of key assets there, DTEK and Metinvest, were officially denying any fact of seizure up until the afternoon of March 15).

The council’s blockade, if implemented, will cost Ukraine about USD 1.5 bln in an annualized additional trade deficit and 1.0-1.5% in potential GDP, we estimate. However, this is not something that will prevent economic recovery or threaten currency stability in Ukraine, as we see it.