Fresh sanctions against Russia posing extra downside economic risks - ING

FXStreet (Łódź) - Dmitry Polevoy from ING sees new EU and US sanctions against Russia, affecting companies from the financial and oil sectors, generating short to medium term macro risks, although political effects could be mixed.

Key quotes

“EU’s package reinforces the recently expanded list of persons and entities seen to be undermining Ukrainian territorial integrity and sovereignty, including the so-called ‘cronies’, the suspension of EIB and EBRD financing, the restriction of investment and trade with Crimea and Sevastopol and the reassessment of bilateral cooperation with a view to reducing it."

“Just after the EU decision, the US announced a widening of sanctions imposed on 16 July, adding three state-owned financial institutions – Bank of Moscow, Russian Agricultural Bank and VTB Bank – and one company in the arms or related sectors –United Shipbuilding Corporation.”

“Overall, the composition of EU sanctions seems to be as expected, while we still need to see the official announcement (expected to be published today/tomorrow). The US sanctions are also in line with an earlier message.”

“The move confirmed that the EU has moved significantly closer to the US in its overall position towards sanctions, opening a way to further extensions if Russian leaders don’t respond.”

“By choosing the financial and oil sectors, the EU/US have indeed chosen the most sensitive sectors for the economy, together directly accounting for around 13% of GDP.”

“We see sanctions posing extra downside economic risks, while they may have low efficiency in forcing the Russian leaders to change their position on the Ukraine crisis, given a lack of a traditional feed-back loop from the populace to political leaders via democratic elections.”

“In the environment of biased media coverage, the sanctions may even fuel a further increase in support of the Russian president, thus risking Russia taking a tougher stance.”

“All in all, all sides of the tensions need to find a diplomatic solution to the crisis, and the sanctions may be not the best way to achieve the goal, given the history.”