What Russian Sanctions Mean For Your Money

 

Vladimir Putin had a chance to back down from his aggression in the Ukraine after Russian separatists shot down a Malaysian passenger jet.

Unfortunately, he didn’t.

With no answer to the charge that the Malaysian jet would not have been shot down but for the course of events he set in motion, Mr. Putin has also shown no indication that he plans to change course.

Left with little choice, the United States and European Union imposed a new series of economic sanctions on Russia to express their disapproval. The new sanctions include restrictions on Russian state banks from financing themselves on a long-term basis in European capital markets. It also imposes an embargo on trading weapons and dual-use technology on Russian companies, and restricts exports of energy-related equipment and technology to Russia.

For the moment, the West hopes that economic weapons will create enough domestic political pressure on Mr. Putin to change his behavior. This may be an optimistic scenario.

If recent history is any indication, it will require far more severe steps to put an end to Mr. Putin’s hegemonic dreams.

Mr. Putin is playing a very long game, one in which he’s prepared to see the Russian economy pay a very high price. That will mean consequences for investors the world over…

Sanctions Could Damage Banking, but Russia Has Options

While the West could have done more, the new sanctions will bite. In particular, the restriction that limits Russian state banks from selling any financial instruments with a maturity of over 90 days could cause significant damage to the Russian economy. This is expected to affect about 30% of Russia’s bank sector.

Last year, $10 billion, or about one-third, of the bonds issued by Russian state banks were sold in the European Union. Without access to Western lenders, Russian state banks will have to look to lenders in the Middle East and Asia to refinance this debt. They will likely be able to find lenders in these regions, however, and fall far short of imposing permanent damage on the Russian financial sector.