It’s quite a coincidence. Yesterday, before today’s tragedy, the US Treasury announced new sanctions on a number of Russian individuals and businesses. Beauchamp tries to understand the rationale behind them:
What’s the point of imposing them now?
“I’d assume it’s the blatant transfer of Russian weapons to the rebels,” Dan Drezner, a professor at Tufts’ Fletcher School and an expert on sanctions, said. Indeed, Russia has been openly dumping weapons — including tanks and rocket launchers — into East Ukraine. That’s because the Ukrainian military had been slowly getting the upper hand over the Russian-backed separatists, including retaking two major rebel-held cities, Slovyansk and Kramatorsk, in early July.
Keith Johnson and Jamila Trindle explain the sanctions:
Despite the tough talk, the United States didn’t cut off whole sectors of the Russian economy, but it went after four big energy and finance firms. The Treasury Department banned a pair of big Russian banks — Gazprombank and VEB, Russia’s state-owned development bank — from issuing any new debt or equity in U.S. markets. It also banned two energy giants, Novatek and Rosneft, from tapping U.S. debt markets. But the United States did not target Gazprom, Russia’s mammoth oil and gas firm, directly. The United States also blacklisted eight Russian arms firms and a list of senior Russian officials.
The sanctions announced Wednesday will essentially close U.S. capital markets to those big firms. That limits those big firms’ abilities to roll over or refinance their debts, making it more expensive for them to borrow new money. Officials said those firms would likely have to turn to Russia’s Central Bank to try to fill their financing needs.
Leonid Bershidsky is unimpressed:
[The announcement] names large companies such as the state-controlled oil major Rosneft, second-biggest natural gas producer Novatek, third biggest bank, Gazprombank, and government-owned development bank, VEB, which makes for impressive headlines. But the sanctions against them are narrow.
The banks are not banned from dollar clearing, and Gazprombank-issued Mastercard and Visa cards will still work, unlike for a few previously sanctioned small Russian banks. The energy companies can still trade with U.S. entities. Igor Sechin, Rosneft CEO and Putin’s close friend, says he is confident his company’s several big projects with ExxonMobil are going ahead, and nobody in the U.S. has contradicted him.
The only thing denied to the big Russian companies will be new financing with a maturity of more than 90 days from U.S. entities and individuals. The markets have already taken care of that: In recent months, it has become hard for Russian public and semi-public companies to line up foreign credit.
Although the new sanctions include “tons of loops and caveats,” Ioffe is persuaded that they might be effective in the longer term:
In sum, it’s a gradual ratcheting up, as slow-motion as the conflict on the ground. But it’s definitely a powerful crank of the handle. Take, for instance, ExxonMobil: the sanctions don’t kill its multi-billion-dollar deal with Rosneft outright, but they might eventually. The official said that these sanctions “don’t provide an exemption for Exxon.” Under this latest order, certain types of transactions and refinancing could easily be blocked, throwing the whole deal into jeopardy. (Apparently, these plans weren’t shared with Exxon in advance and the sanctions team seems pretty indifferent to the oil giant’s coming travails. “What they do now I cannot say,” the official said.)
“It’s as much a signal to Wall Street as it is to the Kremlin,” says [the head of Russia research for the Eurasia Group, Alexander] Kliment. “While the measures are limited in certain ways, the U.S. is making clear that its not scared to go after major Russian companies. It’s a pretty wide noose at the moment, but it’s one the U.S. is prepared to tighten.”
Robert Kahn is cautiously optimistic that the sanctions will bite, especially if Europe plays along:
It is not quite full “sectoral” sanctions–both because it is limited in what it blocks (new debt and equity of maturity greater than 90 days) and because it excludes Sberbank, which holds the majority of Russian deposits. But I would argue that the reach of this new executive order in terms of institutions covered is sufficiently broad that the effects on the Russian financial system could be systemic.
Europe chose not to match these sanctions, so it is critical that large European banks not fill the gap left by the withdrawal of U.S. banks. Moral suasion from European leaders on their banks (and the desire of those banks not to run afoul of U.S. law in this space post BNP/Citi fines) should be effective, and U.S. officials appear confident that the easy loopholes are closed. In addition, if any leg of the transactions require U.S. institutions, the deals will fail based on U.S. action alone. In this sense, the U.S. can go ahead of Europe and pull them along.
Henry Farrell wonders if the downing of MH17 will push EU leaders to impose harsher sanctions of their own:
If it turns out that Russian sponsored rebels have used Russian advanced weaponry to down an aircraft bound from the Dutch capital to Kuala Lumpur, it may transform Europe’s debate, and make it far harder for countries like Italy to remain holdouts. EU member states – like all states – tend to be pretty hard nosed about pursuing their self-interest, and it could be that several countries would prefer to limit their actions to rhetorical condemnations. …
However, as Frank Schimmelfennig shows in his account of bargaining over E.U. enlargement, states can also find themselves “entrapped” by rhetoric into taking positions that run counter to their true preferences.
But, even if the EU decides against new sanctions, Russian trade with Europe is already on the downslope:
According to new data out today (pdf), trade with Russia shrank particularly sharply in the first four months of 2014, a period that includes the annexation of Crimea in March and a few rounds of EU travel bans and asset freezes against Russian officials. The EU’s imports from Russia—mainly oil and gas—fell by 9% in the year to April, while exports from the EU to Russia dropped by 11%. Given steadily souring relations, further declines seem likely. …
But even without explicit sanctions, the EU has been hitting Russia where it hurts. Various technical and bureaucratic hurdles have been erected to limit the flow of Russian gas into the EU via Germany, Ukraine, and a proposed southern pipeline. Today the EU delayed, again, a decision on allowing more Russian gas to flow through a pipeline to Germany. Structural, long-term dynamics in global energy markets won’t be kind to Russia’s key exports, either. It all adds up to more trouble ahead for Russia’s sputtering economy.
The Dish covered the two previous rounds of US sanctions on Russia here, here, here, and here.
The Dish 