The US imposed additional sanctions on Russia’s finance, energy, and defense sectors today over its involvement in the Ukraine crisis, on the heels of another round of sanctions from the EU:
The U.S. Treasury Department tightened on September 12 debt-financing restrictions for sanctioned banks from 90 days to 30 days. And it added Sberbank, Russia’s largest financial institution, to the list of state banks subject to the restriction. It also prohibited the exporting of goods, services, and technology for Russian deepwater or offshore projects for five Russian firms: natural gas monopoly Gazprom Gazprom, its oil unit Gazprom Neft, Lukoil, Surgutneftgas, and Russia’s largest oil producer, Rosneft. Gazprom Neft and pipeline operator Transneft also have new debt restrictions of over 90 days’ maturity. … The European Union’s new sanctions include asset freezes on 24 senior officials and lawmakers, including nationalist firebrand Vladimir Zhirinosvky, bringing to 119 the number of people sanctioned by the bloc over the Ukraine conflict. The measures also include restrictions on financing for some state-controlled Russian companies such as Rosneft, Transneft, and Gazprom Neft.
Noting that the sanctions on Rosneft might freeze a $500 billion joint project with ExxonMobil to drill for oil in the arctic, Matthew Philips comments that “these latest energy sanctions could sever what are arguably the closest ties remaining between Russia and the West”:
In the two decades since the Cold War ended, Russian and American astronauts have worked together on the International Space Station, and the Russian military has helped the U.S. get equipment in and out of Afghanistan. But the strongest area of cooperation has come in the energy industry, where U.S. oil majors such as Exxon and Chevron(CVX) have entered into a number of joint ventures with Russia’s state-controlled energy giants Rosneft and Gazprom (GAZP:RM).
The Bloomberg View editors also tie the EU sanctions to the energy war:
Putin may have himself to blame for tipping the EU’s internal debate against him. By reducing natural gas deliveries to Poland and Slovakia this week, Russia made it clear that it still plans to escalate its effort to turn Ukraine into a failed state. Russia’s state gas company OAO Gazprom has cited maintenance work as the cause of the stoppages. That’s hard to believe. Poland and Slovakia happen to be the two countries that are reversing pipeline flows to pump natural gas from the EU into Ukraine, which Russia cut off from supply in June. The goal was to ensure that Poland doesn’t have enough gas to sell to Ukraine — which is exactly what happened. Slovakia has been warned.
Keith Johnson sees the Kremlin’s latest moves as an escalation in the gas war:
It’s not entirely clear whether the sudden drop in Russian gas exports to those countries is politically motivated or if there is a technical reason, such as maintenance on the Russian gas system or the pipelines themselves. Gazprom said that shipments to both countries remain unchanged. In any event, Polish officials said they have been assured by Russia that gas volumes will return to normal on Friday.
But Russian President Vladimir Putin made clear earlier this year that Moscow would aggressively go after countries that buy Russian gas and then turn around and ship it to Ukraine. That kind of energy trade, known as “reverse flow” because most of the gas pipelines pump fuel from east to west, has long incensed Gazprom and the Kremlin, which charge different countries different prices for gas and which rely on energy exports to maintain leverage over former client states in Central and Eastern Europe.
But Bershidsky calls sanctions on Russia a lose-lose proposition, particularly for Europe:
In this race to the bottom, Russia may prove the more resilient, if only because Putin’s authoritarian regime has a mandate from a majority of Russians to wage a new cold war. The food embargo and the price increases it caused in Russia did not drive down Putin’s approval ratings, and Russians have stoically accepted the ruble’s recent losses against the dollar. The currency depreciation can also help the government weather low raw materials prices by boosting the value of foreign-currency exports in ruble terms.
Europe, on the other hand, cannot take much more economic pain. A new slump could send some governments tumbling. In France, 62 percent of the population already wants President Francois Hollande to resign. The world is too interconnected economically, and the European recovery too fragile, to keep using trade disruptions as weapons. Even Ukraine is taking a hit from slumping metals prices: Steel and iron ore account for about a third of its exports.
The Dish 