Wednesday

21st Feb 2018

EU sanctions hurting Russian firms, US says

  • Moscow's Gum shopping centre. Sanctions have had some effect, but US study notes Russia is not on the verge of a “systemic” crisis. (Photo: Martha de Jong-Lantink)

EU and US economic sanctions are draining money from some Russian companies and from its state aid fund, according to US research.

The sanctions have, over the past two years, wiped out one third of the operating profit, half of the assets, and one third of the staff in some targeted Russian firms, a new study by the US state department said.

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  • Russian oil firms, such as Rosneft have no access to short-term credit or high-end technology (Photo: rosneft.com)

Russia’s foreign reserve fund, which is being used to prop up affected companies, is due to run dry in early 2017 at the current rate of spending, it also found.

It said that low oil prices and shoddy management were bigger factors in Russia’s economic decline.

But it said sanctions also caused uncertainty, prompting some investors to “derisk” by abandoning Russia, even if their investments had had no direct link to Western blacklists.

The US briefed press in Brussels on Tuesday (27 September) in the run-up to an EU leaders’ debate on Russia next month.

The sanctions were imposed after Russia’s invasion of Ukraine in 2014.

The US vice-president, Joe Biden, recently voiced concern that five EU leaders had publicly criticised the measures.

The Cypriot president, the Greek prime minister (PM), the Hungarian PM, the Italian PM, and the Slovak PM, among others, have spoken out against the EU policy .

Biden's remarks aside, the US is quietly confident that the EU will roll over the measures before they expire in January. Its confidence comes from German chancellor Angela Merkel’s firm stance and from the fact that nothing has changed on the ground in Ukraine.

No 'systemic' crisis

Despite its alarming figures, the US study did not indicate that Russia is on the verge of a “systemic” crisis.

A senior US official told press that Moscow could tap pension funds or other assets to cover the foreign reserve fund.

The US study also said the likelihood of hard-hit firms being bankrupted was just 2 to 3 percent higher.

The worst damage was done to companies that were specifically named as being under embargo. Those affected indirectly by “sectoral sanctions” suffered less.

The sectoral sanctions block short-term credit on international markets to some Russian banks, arms makers, and oil companies. They also ban exports of high-end technology.

The US said firms that Russia has designated as being of “strategic” importance, such as Rostec, a defence conglomerate, were the least likely to collapse.

'Disinformation'

The US official said Russia’s “disinformation” campaign in Europe had claimed that sanctions backfired on EU economies and that they made no difference to Russia.

But the study found that the sanctions' “median” negative impact on all 28 EU economies was just 0.13 percent of GDP.

The official noted that EU states which suffered the most supported sanctions, while those that suffered least were among the critics.

Lithuania (-2.8% of GDP), a former Soviet state, for instance, is a staunch supporter, but Italy (-0.07%) is Russia-friendly.

The US official said that the impact on Russian GDP was hard to “disentangle” from oil prices and other factors.

The official said that Russian counter-measurers had a cost, however. "There's no such thing as a free lunch. The money [used for state aid] could have been spent on Russian taxpayers instead", the official said.

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