March 27th, 2014

US and EU Imposed Sanctions on Russian Officials

Last week, the United States and the European Union imposed sanctions on a number of high-ranking Russian officials.

At present, the total number of people subject to EU sanctions is 33. The U.S. sanctions target 20 Russian officials and Bank Rossiya, which was frozen out of dollar transactions. A number of other Russian banks have already felt the effects of the sanctions as well. Russia’s SMP Bank reported that around 9 billion rubles ($248 million) had been withdrawn by depositors on Monday. The co-owners of SMP Bank are Boris and Arkadiy Rottenberg, who were also included on the sanctions list.

Two leading rating agencies, Standard & Poor’s (S&P) and Fitch, have reduced Russia’s long-term sovereign credit rating from “stable” to “negative.” According to the official statement released by Fitch, “The revision of the Outlook to Negative reflects the potential impact of sanctions on Russia’s economy and business environment.” The agency also downgraded the outlook to negative from stable on 15 Russian banks.

The G7 leaders agreed to intensify sanctions if Ukraine crisis escalates

A number of countries, including Britain, Germany, Norway, and France, have suspended military cooperation with Russia. Crimea will also feel an immediate impact of sanctions: for instance, in the words of British Prime Minister David Cameron, the region will be able to export goods to the EU only through the Ukrainian customs.

At the recent summit in Hague, the G7 leaders agreed to intensify their efforts if Ukraine crisis escalates. This may result in sectoral sanctions. Experts believe that the effects from sanctions against the whole sectors of the Russian economy will be most significant. Sergei Guriev, a leading Russian economist, said that if the high-level decision on tougher measures against Moscow is made, there is a potential for an Iranian scenario with “oil and gas embargo as well as limitations on all financial transactions.” In the short-run, the fall in value of the ruble and capital outflows will continue. Standard & Poor’s estimates that in the first quarter of 2014, capital flight from Russia will reach $60 billion ($65-70 billion according to Russia’s Ministry of Economic Development) compared to $63 billion that flowed out of the country in the whole of the last year.

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