The United States, the European Union and Great Britain imposed new sanctions against Russia for recognizing the independence of the Donetsk and Lugansk People’s Republics. The restrictions turned out to be easier than expected, to which the exchange immediately reacted.
After the speech of US President Joe Biden, the stock market began to recover after a daily drop: trading on the Moscow Stock Exchange ended at 3100 points (at the peak of the collapse it fell below 2760 points), and the dollar fell 1.2%. , at 78.8 rubles (during the trading session it exceeded the mark of 81 rubles).
What did the West decide?
The US sanctions list includes restrictions on the purchase of secondary debt from the Russian government, two Russian banks (VEB and Promsvyazbank), and individuals (VK CEO Vladimir Kiriyenko, VTB Bank Vice President Denis Bortnikov, and Promsvyazbank CEO Petr Fradkov).
The restrictive measures of the European Union and Great Britain are similar to those introduced by the United States: the sanctions also affected VEB and Promsvyazbank. In addition, the European Union has included in the lists the bank Rossiya, and the United Kingdom, the Industrial Savings Bank, the Black Sea Development and Reconstruction Bank and the Genbank.
The British “black lists” also include three Russians: Gennady Timchenko, Boris and Igor Rotenberg. Their assets will be frozen and the entry into the country of the entrepreneurs themselves will be restricted.
The head of European diplomacy, Josep Borrell, for his part, has announced restrictions on 27 natural and legal persons. The European Union also intends to impose sanctions on 351 deputies of the State Duma who approved the recognition of the independence of the DNR and the LNR.
In addition, German Chancellor Olaf Scholz announced his decision to suspend the certification of the operator of the Nord Stream 2 gas pipeline. It is still too early to talk about sanctions, much less freezing the project, but that is not ruled out in Berlin. “First of all, we are far from that. What will happen now is a new security assessment for gas supplies in light of everything that has happened,” the foreign minister said, responding to the question of what Russia should do to launch the gas pipeline. .
Secondary debt restrictions
Commenting on the reports of new sanctions, the Russian Ministry of Finance said that they were monitoring the situation in the financial markets. Thus, in order to strengthen stability in the debt market, decisions on the need to hold auctions for the placement of Federal Loan Bonds (OFZ) in the coming weeks will be made based on the market situation.
“A significant amount of temporarily free funds in the single treasury account (more than 4.5 trillion rubles with net loans planned for 2022 – 2.2 trillion rubles) allows for a flexible approach to the placement schedule,” the department noted. .
In addition, the Ministry of Finance recalled the Bank of Russia’s decision, which previously allowed financial institutions to temporarily disregard changes in the market value of securities. According to the Ministry of Finance, this will help the markets to adapt to the changes.
Decisions on the placement of OFZ will be made based on the market situation.
The sanctions imposed by the United States apply to the secondary circulation of bonds issued by the Bank of Russia, the National Welfare Fund (NWF) or the Ministry of Finance after March 1, 2022. “Foreign investors have no obligation to sell the bonds they already have in their portfolios. Therefore, there should be no large-scale pressure on the secondary market for public debt”, say the experts at BCS Express.
The company recalled that earlier sanctions had already been introduced regarding investment in the primary market in new securities issues of the Russian government. “In terms of the ability to attract external financing, nothing has changed. In addition, it is worth considering the relatively low volume of the state external debt of the Russian Federation ($ 56.7 billion), which is a multiple of the record of gold and foreign currency, exchange reserves ($639.6 billion), threats to financial stability, no,” analysts said.
The US, EU and UK sanctions lists include two banks: VEB (plus 25 subsidiaries: VEB-Leasing, Prominvestbank, VEB Capital, Russian Export Center, VEB Ventures, CSKA football club and others) and Promsvyazbank. The former is one of the largest creditors of the Russian economy, the US Treasury explained the inclusion of the latter in the lists by the fact that it is Promsvyazbank that handles almost 70% of defense contracts.
When assessing the potential consequences, it should be noted that VEB has been under sanctions since 2014; however, before they were not blocking, but much softer, sectoral. Indeed, VEB was effectively cut off from Western capital markets anyway and, unable to refinance its foreign debt, received subsidies from the federal budget to service it.
After Biden’s speech, VEB said they would continue to “improve their financial stability and operational efficiency, properly fulfill their obligations, and also use all available means to protect their legitimate rights and interests.”
“VEB.RF always complies with the laws of the countries in which it implements its projects. The restrictions imposed by the United States will not affect VEB.RF’s commitment to its mission of promoting the development of the Russian economy and the well-being of its citizens,” the company said in a statement.
In turn, Promsvyazbank noted that the imposition of sanctions was expected. Now that the bank is operating normally, you can replenish and withdraw money from the cards at any branch or ATM. The service of deposits, loans and settlement transactions also continues.
“The imposition of sanctions imposes a number of restrictions on foreign currency transactions, including securities transactions, account maintenance, as well as the use of bank cards in the countries that have announced sanctions,” Promsvyazbank said.
In his speech, Joe Biden said that so far the first package of sanctions has been approved, and in the event of an escalation of the crisis around Ukraine, the next ones will be introduced. Officials in Brussels and London have also signaled their willingness to tighten restrictions. At the same time, all three parties are ready for dialogue with Moscow. In particular, the US president expressed the hope that “diplomacy is still available.”
RANEPA’s principal investigator, Doctor of Economics Alexander Pakhomov, points out that the sanctions currently imposed are targeted. Further development of the situation, according to the expert, will depend on the geopolitical situation: in the event of an escalation of confrontation, Washington may impose restrictions on loans, as well as limit the supply of high-tech equipment to Russia.
At the same time, according to Pakhomov, the ability of the United States to pressure Russia is limited. “Given the fairly stable state of the Russian economy, it is unlikely that the United States will be able to exert serious pressure,” the expert noted.
The scientific director of the Institute of Regional Problems, Dmitry Zhuravlev, predicts that the sanctions imposed are only “recognition in force”.
“The list of banks does not include either Sberbank or VTB, that is, those that are directly connected with citizens. After all, sanctions are needed to arouse discontent with the authorities within the country. It is clear that there will still be measures otherwise, their efficiency will be unacceptably low for the United States. They will even certainly affect the energy sector,” the expert said.
According to him, the only way out for Russia is to diversify from west to east. “Banks need a couple of months to dominate the Asian markets, it will take about a year to supply power carriers, the infrastructure will need to be built,” Zhuravlev explained.
The sanctions imposed have not yet affected the work of banks
Georgy Ostapkovich, director of the Center for Market Research at the Higher School of Economics at the National Research University, believes that the sanctions against the largest Russian banks and technology imports will be the most significant.
“Most likely, we will be able to handle the rest. The oil and gas sector is unlikely to be affected – without our hydrocarbons, the price of them will rise sharply, this is not beneficial to anyone. And Nord Stream 2, while is frozen, it will most likely be launched sooner or later, in any case, as long as the losses due to the situation with this pipeline are small, “explained the economist.
According to Ostapkovich, any restrictions will not last forever: “Negotiations will begin anyway on their abolition, exchange. The stock of gold and currency will allow us to survive until this moment without big losses.”
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