Western sanctions towards Russia are still only half-measures

Propagandowa satyra na premiera Ukrainy Arsenija Jaceniuka, który rzekomo podkrada rosyjski gaz.
Russian propaganda about Ukraine trying to steal Gazprom’s natural gas.

17.07.2014 – The Ukrainian crisis continues. Kiev presented evidence, which shows Russian support for the separatists from Donbas. That is why the USA and the EU are implementing new sanctions. Their actions are once again asymmetric and actually give Moscow time. 

The Ukrainian ambassador in the EU, Konstantin Yeliseyev, presented to the European Union a document about the Russian actions in the Eastern part of his country. Russians are implementing a strategy of the hybrid war and the “controlled chaos” in order to make Ukraine a fallen (bankrupt?) country.

According to Kiev, in order to do that they are:

  1. Creating a puppet government,
  2. Providing supplies of weapons,
  3. Sending their mercenaries, which are to destroy infrastructure and terrorize the people, to combat regions,
  4. Paralyzing the regional economy, judiciary and social institutions and the police,
  5. Provoking the increase in the number of refugees,
  6. Conducting an informational war,
  7. Planning to implement the Russian “peacekeeping forces.”

Taking all of this into consideration, the Ukrainians appealed to the West for the implementation of harsh sanctions towards Russia. The USA and the EU implemented them yesterday.

The United States Department of Treasury broadened the sanctions to:

  1. The Bank of Foreign Economic Activity (Vnesheconombank)
  2. Gazprombank
  3. Novatek
  4. Rosnieft
  5. Kalashnikov
  6. Almaz-Antei (the anti-aircraft shield)
  7. Rostec (radioelectronics)
  8. Uralvagonzavod (tanks)

The American sanctions were broadened from only applying to the CEOs of Novatek and Rosnieft to applying to the whole companies. They also consider one of the Russian investment banks and Gazprom’s repository. Washington indirectly admits that it left this company out in order to protect the allied firms and, therefore, Gazprom’s clients in Europe. It gives the possibility of implementing new sanctions, but only in coordination with the European Union.

Read also: A Transatlantic dimension of the Energy Union

It is difficult to estimate the results of sanctions towards Novatek and Rosnieft. As long as they only affected the CEOs of these companies, the Exxon Mobil, for example, claimed that it could still do business with Rosnieft. Including the whole company on the list by the Department of Treasury could significantly hinder cooperation, despite the strong bond between the company and the USA. It will certainly affect important financial agreements with BP and Glencore. The American companies are not involved with Novatek, so their losses will not be financial.

The American sanctions intend to cut off the Russian companies from dollars. Russians are afraid of this scenario. That is why their media are talking about switching the American currency to, for example, rouble or yuan in transactions in the gas sector. However, the reality points otherwise. The “deal of the century” between the Chinese CNPC and Gazprom will be accounted in dollars. For now, the American currency will not fall from the pedestal. Only the long-term actions, such as creating the BRICS bank, which for now will receive a small amount of money, or establishing a shady “Energy Union” as a part of this group can bring changes. On the other hand, the clear threat of the United States about the possibility of implementing such sanctions might have caused the Russian funds to migrate to accounts that are beyond the control of the Department of Treasury.

By contrast, Washington left itself some room for actions. The Republicans are still pressuring on sanctions in the energy sector, banking and armaments industry. It is reasonable to expect that this will be the USA’s next move if the Russia doesn’t back out the support for the separatists in Ukraine.

During yesterday’s meeting of the European Council, the member countries decided to enlarge the list of surnames by another 17 entries. They also excluded the support of the European Bank of Reconstruction and Development and the European Investment Bank for the Russian public sector. This action does not mean the stoppage of support that is already being given. More was done by the European Commission, which yesterday, keeping up the momentum after South Stream, froze the discussions about the possibility of not including a part of Nord Stream – OPAL – which delivers the Russian gas from the northern part of Germany to Eastern Europe and the gas hub in the Austrian Baumgarten, in the anti-monopoly law. The pipe is already excluded from the law of free access to its power for 50 percent of its capacity. It’s used by Gazprom, which ultimately wants to use 100 percent of its power in order to increase the transit through this route, to the detriment of Ukrainian pipelines. The European Commission declares that the discussions about this were frozen for an indefinable period. The Russians are claiming that only until the mid September. However, it is possible to assume that, similarly to the talks about South Stream, the freeze on this is conditional and depends of the situation in Ukraine. As long as the stoppage of discussions about the southern part of the investment will be inscribed into the Strategy of Energy Security of the European Union, the declaration about Nord Stream is political and might be revoked under the pressure of countries that care about the shutdown for OPAL or, in other words, mainly Germans. It is necessary to remember that their regulator agreed for the full shutdown in the last decade. The real sanction would be the withdrawal from the existent agreement for OPAL, but this subject is not discussed during European meetings. The European Commission invariably calls for the return to the tripartite gas negotiations with the involvement of Ukraine and Russia. The problem is, however, that the Russians don’t want to come back to the discussion table and the heating season is getting closer.

I am guessing that the new sanctions didn’t surprise the Russian president, Vladimir Putin. Russia includes these kinds of economical costs into the risk of obtaining certain political benefits. Without any determined, coordinated sanctions that hit the foundations of the Russian budget, which means mainly the energy companies, the West only moves further behind the red line and Moscow is increasing the geopolitical benefits of other means, which it will ultimately get if, accordingly with the described by Yeliseyev strategy, it will lead to the fall of the Ukrainian nation. That is why Russia is taking the risk, not giving up and continuing the game.

The main problem of the West is the already mentioned disproportion between the actions of Americans and Europeans. The pro-Russian camp in the EU is effectively blocking the costly but necessary actions towards Gazprom, which is holding the Americans back with making any decided moves in order to prevent certain European companies from losing influence on the Russian market.

Read also: It is time to reanimate European investigation against Gazprom. Quick Questions to Edward Lucas

The market’s reaction is calm. The price of oil is changing more due to the situation in Iraq, Syria and Libya than the Ukrainian crisis. Brent already costs $107 for a barrel. An increase to $108 is expected. The analysts are expecting a small correction on the Moscow’s market, MICEX. Today morning, the value of the market fell by 2,5 percent. The RTS market, in which the transactions are made in dollars, fell by 3,2 percent. The shares of Rosnieft fell by 6 percent, but then increased by 4 percent. The value of Novatek’s shares fell by 4 percent. Rouble’s value fell by 1 percent compared to dollars. Moscow considers the American sanctions as “illegal and unjust.” Russians are warning that the bolder sanction policies of the USA will affect Europe. – In Europe there is little understanding for these policies and not everyone agrees to it – Alexey Pushkov, a Russian parliamentarian, underlines on Twitter. The political gap between Europe and the United States is getting wider.


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