The United States and the European Union have increased the level of their sanctions against Russia on Wednesday 16 July. For the first time, they have targeted Russian enterprises specialised in gas and petrol, which maintain close relations to the central power in Moscow. US President Barack Obama underlined that Russia faces economic weakening and diplomatic isolation as a result of politic decisions in Ukraine. The European Union also decided to target the entities that materially and financially support breaches to the Ukrainian sovereignty.
Increasing targeted sanctions
Washington’s new sanctions target in priority large enterprises in the banking, military and energy sectors. Observers have highlighted their alliance to Russian President Vladimir Putin and their benefits from his tenure as President. They aim at closing medium and long term dollar funding notably to the country’s largest oil producer Rosneft, its second largest gas producer Novatek and its third largest bank, Gazprombank. They will also affect state-owned bank Vnesheconombank and several arms firms. Rosneft and Novatek are led by Igor Sechin and Gennady Timchenko, two close friends of the current Russian President. The list of sanctions also includes a widening of personal sanctions against Sergei Besesda from the domestic intelligence service and Oleg Savelyev, minister of Crimean Affairs.
EU diplomats said in Brussels on Wednesday that they would apply similar sanctions, and notably stop by the end of July loans from the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD) that are currently financing projects in Russia. The EIB promised to lend €1 billion to Russia while the EBRD already lent €1,8 billion.
Although US firms will be able to continue doing business with the targeted companies, Vladimir Putin condemned the penalties as likely to damage the US energy sector and to bring the two countries’ bilateral relations to a “dead end”. During his six-day visit to Latin America, he added that Moscow would “painfully” hit Washington’s national interests back. Prime Minister Dmitry Medvedev for his part threatened that sanctions would raise anti-American feelings, when 70% of Russian already show negative attitudes towards the US.
Russian officials blamed the American unilateral decisions of being contrary to the “spirit or the legal standards of existing international relations”.
Renewed tensions at the border
Barack Obama declared yesterday that Washington needs “to see concrete actions and not just words, that Russia is committed to trying to end this conflict along the Russia-Ukraine border", specifically, 12,000 Russian soldiers were seen at the Ukrainian border, according to the Pentagon. Intense fighting and weaponry transfers have been taking place in the Eastern part of the country in the last days, notably through an air raid on a residential area and the shooting down of a military transport plane on 14 July.
Ukrainian President Petro Poroshenko called for the European Union to increase its support to Kiev in the aftermath of the recent events during their summit in Brussels. Analysts declared that the real impact of US sanctions will depend on the EU’s involvement to further their own sanctions. Although the EU strategically needs to show it is able to unite on the Ukrainian issue, energy dependency on Russia explains a great part of their reluctance to apply as tough penalties as the US.
Sanctions hit markets
The Moscow stock exchange’s index MICEX revealed yesterday that Rosneft and Novatek were both down by almost 5% after Barack Obama’s announcement. In reality, Rosneft represents 8,6% of Russia’s overall GDP with USD40 billion revenues in the first quarter of 2014, and the sanctions may have large consequences on the company’s finance arrangements. The Russian ruble, has also continued to weaken by 2% to the dollar.
Deputy Chairman of the Duma, the Russian Parliament, Anatoly Aksakov nevertheless relativized things by saying that the sanctions would have greater psychological than financial consequences in the medium-term due to the firms’ large governmental funding. Nonetheless, the latest US and EU decisions make the Ukrainian crisis enter a new phase while provocations from both sides continue.
All the new sanctions can be found here.
Author : Laura Gounon