Joe Biden announced on Tuesday a “first tranche” of sanctions which must cut Russia off from Western funding and target “Russian elites” as well as financial institutions.
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“We are putting in place broad sanctions on Russian sovereign debt. This means we are cutting off the Russian government from Western funding,” the US president said in remarks.
Biden also on Tuesday denounced “the beginning of a Russian invasion of Ukraine,” announcing that the United States would continue to supply “defensive” weapons to Ukraine.
“I have authorized the redeployment of American forces already positioned in Europe to reinforce our Baltic allies, Estonia, Latvia and Lithuania,” added the American president in an address to the nation from the White House.
More details to come.
Sanctions against Russia: a warm-up with still limited consequences
After weeks of lying poker and threats, the first Western sanctions against Russia were unveiled on Tuesday. But the impact remains limited for the moment, both for Moscow and for Western economies.
Targeting mainly the Russian financial sector, these sanctions are “in line with the strategy of a gradual approach which excludes the energy sector”, comments to AFP Olivier Dorgans, lawyer specializing in economic sanctions at the firm Ashurst, recalling however the decision German company to suspend the Nord Stream 2 gas pipeline.
The West hits the financial sector
The Europeans and the British focused their first blows on Russian finance.
Five banks are targeted by the British, including Rossiïa and Promsviazbank, which have also been singled out by the EU, according to a European diplomatic source, because of the financing of Russian military activities.
The banks targeted “are relatively minor”, notes Olivier Dorgans, also recalling that many Russian capital outside the country has already been repatriated as a preventive measure.
The announcements targeting certain oligarchs, direct actors in the conflict or deputies having approved the recognition of the independence of the Ukrainian separatist territories will also have a weak impact on the Russian economy.
But the future increased difficulties for the Russian state to access European capital markets to refinance its debt, after the announcement of sanctions by the head of the diplomacy of the EU Josep Borrell on Tuesday, could weigh on the value of the ruble, and by extension on the purchasing power of Russian consumers for imported products.
Concerning Western banks, the president of the banking supervisor within the European Central Bank (ECB), Andrea Enria, spoke on February 10 of a relatively “contained” exposure to Russia.
But the French banking group Societe Generale, through its subsidiary Rosbank, the Italian Unicredit and the Austrian Raiffeisen would be concerned by a potential escalation of tensions.
Especially if Washington decides to draw the weapon of the ban on transactions in dollars or if Russia is excluded from the international Swift system, essential for international banking exchanges. The American president must speak in the evening.
Commodities: shock in sight
Apart from the symbolic suspension of the Nord Stream 2 gas pipeline, which was not yet in service, Westerners are currently ignoring the Russian energy sector.
These sanctions “do not yet go where the shoe pinches, it is a coherent step in relation to the defense of European economic interests”, underlines Me Dorgans.
Sanctioning the Russian energy sector, crucial for the country’s economy, is indeed a risky bet for Europe, which imports 40% of its gas needs from Russia. This offers “leverage to the Kremlin”, warned the Brussels Bruegel Institute in a recent note.
Especially since members of gas-exporting countries, including Qatar, warned on Tuesday that they have limited capacity to quickly increase supplies to Europe.
The conflict, however, is already contributing to soaring prices on the commodity markets, where Russia “plays a critical role”, notes the rating agency Fitch.
It recalls the weight of the country in the world supply of aluminum or palladium. Russia is also one of the world’s largest producers of nickel.
On the agricultural market, the country is the world’s leading exporter of wheat and represents, with Ukraine, a quarter of world exports of this essential cereal.
And beyond gas, the price of oil climbed close to $100 a barrel on Tuesday.
Increases that weigh on the wallets of manufacturers and consumers all over the world.
Fears about the European economy?
EU Economics Commissioner Paolo Gentiloni warned on Tuesday that Russia’s action in Ukraine would “significantly” increase uncertainty around economic conditions in Europe.
But overall, “the economic impact should remain limited”, whatever the sanctions, because Russia remains, excluding energy, a minor player in world trade, believes Neil Shearing of Capital Economics.
In the EU, Germany has the strongest trade ties with Moscow, but only 2% of its exports go to Russia.
The rise in oil and gas prices could “threaten growth”, by penalizing both the purchasing power of European households and certain industrial sectors, estimates Emmanuel Cau, head of equity strategy in Europe at the bank. Barclays.
Conversely, Ukraine’s financial situation is “extremely fragile” and the country “will certainly need some form of external financial assistance and/or debt restructuring” in the coming months, judges Neil Shearing.