US Sanctions Hurting Russian Economy


After Russia’s annexation of the Crimea Peninsula, following a quickly arranged vote, Ukraine stamped its little feet and told the Kremlin they may nationalize Russian property.

This action was reminiscent of the film, “The Mouse That Roared,” but the Russian bear hardly noticed. Russian president Vladimir Putin signed a treaty that brought the Crimea back into the “Russian Federation.”

History buffs and those old enough were probably reminded of Adolph Hitler’s annexation of Czechoslovakia right under the western power’s noses in 1938 prior to the outbreak of WWII.

The new government in Crimea has been severing ties with Kiev and working to support the shaky economy which Ukraine did not look after very well. Crimea now has control over the pipelines, offshore oil and natural gas platforms of Ukraine’s state-owned Chornomorneftegaz and Ukrtransgaz energy firms.

Tit-for-tat measures seem to be all the rage now, and following the Ukrainian threat to nationalize Russian assets, Crimean authorities threatened to nationalize Ukrainian banks in their territory.

The US and EU issued sanctions on Russian politicians and supporters. Initially, Putin said he was not worried by those sanctions and announced that Russia would respond with their own list of penalties. The announcement seemed more like a joke than anything serious. American lawmakers saw the sanctions as black humor in the midst of an international crisis.

A few days later, though, the U.S. sanctions on Russia started to take effect.

Russia said it may forgo plans to enter planned international markets until after they see the effect of all the sanctions proposed by the West.

There was euphoria in Crimea immediately after the vote and Putin’s signing the documents, because a majority of people in Crimea are ethnic Russians. Now Russia’s immediate economic future looks a little shaky, because some of the sanctions have already lead to Visa and MasterCard withdrawing support for two Russian banks.

The Russian MICEX index was down 2 percent on Friday bringing the Russian stock market down more than 10 percent this month as to tensions between Russia and the West.

Russia’s Finance Minister Anton Siluanov said he may drop plans to raise $7 billion worth of bonds this year, and “may decide to give up external borrowing,” altogether.

Bank Rossiya, considered a “personal bank for senior officials of the Russian Federation,” is one of two banks on the U.S. Treasury’s sanctions list, and both Visa and MasterCard have stopped providing services to them.

SMP Bank, whose bank cards are supported by Visa and MasterCard no longer work, and the two companies say they will not provide services to the Russians “without prior notification.”

Bank owners and personal friends of Putin are also on the sanctions list.

SMP, which is in Russia’s top 40 with $5 billion in assets, said it had no assets in the United States and described Visa and MasterCard’s actions as “illegitimate” because the bank, unlike its owners, was not covered by the sanctions.

Putin may have been smirking at the beginning of the Crimea crisis, but now he has ordered the country’s central bank to help clients of Bank Rossiya. Russia’s central bank said the sanctions “do not have a serious bearing on the lender’s financial stability.”

It remains to be seen whether the sanctions cause lasting damage to Russia, but certainly now, there appear to be serious disruptions in Russia’s financial market. Russia may face a credit rating downgrading, the economy may slow further and the private sector may require official support.

The really serious question is what will Russia do if things start to get really nasty. Hopefully, it will not involve massive military force. Remember what happened when the US blockaded Japan.

Dwight L. Schwab Jr. is a moderate conservative who looks at all sides of a story, then speaks his mind. His BS in journalism from University of Oregon, with minors in political science and American history stands him in good stead for his writing.

Dwight has 30 years in the publishing industry, including ABC/Cap Cities and International Thomson. A native of Portland, Oregon, and now a resident of the San Francisco Bay Area.

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