Alaco

16.09.2014 | Russian sanctions: the screws are tightened

On Friday 12th September the EU and US introduced a further raft of sanctions against Russia.  In what appeared to be a coordinated day of action by the transatlantic allies, Brussels’ and Washington’s targets included banks, energy firms and defence companies.  The new measures were imposed following an escalation in the ongoing conflict in Ukraine, and claims that Moscow had sent Russian troops to support rebel forces.

Sanctions comprised further restrictions on Russian companies’ access to Western capital markets.  Curbs on five Russian state-controlled banks – Sberbank, VTB Bank, Gazprombank, Vnesheconombank and Russian Agriculture Bank – were strengthened, as well as state oil companies Rosneft, Gazprom Neft and Transneft.  Washington went further by listing Lukoil and Surgutneftegaz as well. 

The addition of Lukoil, a privately-owned oil company, is significant.  It is the first company to be sanctioned by either the EU or US that is neither state-owned nor known for its close proximity to the Kremlin.  These measures build on previous US sanctions.  In July Washington restricted Rosneft’s access to medium and long-term financing, forcing the oil major to request a $42 billion loan from the Russian government in August. 

In addition to the financial curbs, the EU and US have also prohibited energy and defence companies’ access to dual-use goods and technology.  This includes major defence and technology conglomerate Rostec, small arms producer Kalashnikov and ammunitions manufacturer NPK Technology Mashinostroyenia.

The new measures mark a gradual evolution in approach.  Restricting Russian access to Western finance previously served as Brussels’ and Washington’s pressure point of choice.  The inclusion of technology curbs targeted at two of Russia’s most strategic sectors, energy and defence, marks an escalation with potentially far-reaching implications.  Major oil extraction projects in the Arctic and Siberia, which require technologies and services currently being provided by Western partners, are in jeopardy, prompting speculation of rising oil prices.  Similarly, Moscow’s defence modernisation programme, under which Russia aims to replace 70% of its military equipment by 2020, is also likely to be adversely affected.

While the commercial consequences of Russia’s stand-off with the West are increasing, their respective positions remain divergent.  The EU and US have signalled their willingness to reverse the new measures if a credible peace process takes its course in Ukraine, yet so far there is little indication that Moscow, Brussels and Washington can bridge their differences over what such a process would look like.  Failing this, further sanctions are likely to follow.