July 23, 2014
EVEN THE UR CAN DEFEAT RUSSIA:
Sanctions finally find Russia's Achilles heel (William E. Pomeranz, JULY 23, 2014, Reuters)
Posted by Orrin Judd at July 23, 2014 6:25 PMThe sanctions have definitely found Russia's Achilles' heel, and with harsher sanctions looming in the aftermath of flight MA17, Putin is finding it increasingly difficult to craft an effective reply.Obama had raised the ante for Russia the day before the Malaysian airliner disaster by unexpectedly announcing a new round of sanctions. The designated enterprises included several major Russian banks (Gazprombank, VEB), energy companies (Rosneft, Novatek) and arms manufacturers. They were not, however, the full sectoral sanctions that Putin dreads the most. These would essentially exclude Russia from the international financial system and restrict major technological transfers. Though key Russian banks and energy companies are now prohibited from receiving medium or long-term dollar financing, U.S. companies are not otherwise prohibited from conducting business with them.But even by hinting as to what sectoral sanctions might look like, Obama has upset Russia's economic calculations. Obama is often criticized for not backing up the "red lines" that he draws. But in Ukraine, Obama essentially has drawn a "gray line" -- demanding Russia take certain actions to end the crisis. No one knows when this gray line is crossed, however. So these new sanctions only heighten the uncertainty -- and risk -- of doing business in Russia.Russian President Putin and German Chancellor Merkel walk during a meeting in Rio de JaneiroThe market responded immediately, with dramatic declines in the Russian ruble and the Moscow stock market. In addition, the sanctions only exacerbated an already difficult situation for Russian companies. Syndicated loans for Russian commodities producers are down more than 80 percent over the past six months. The appetite for Russian bonds has also decreased considerably in the aftermath of the Ukraine crisis. So the current round of sanctions made a bad situation worse.