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Opinion
March 8, 2019 www.intellinews.com I Page 21
The Rusal case is a case in point, which was targeted in the April 6 round of sanctions. Despite being regarded as a ‘victory’ for the Trump administration, the eventual climb down in December actually reflected the White House’s pragmatism. Clearly, the Trump administration was either unable or unwilling to sanction large Russian corporates with a global presence, reinforcing the market perception that only individuals are viable targets.
More than anything, DASKAA 2.0 reflects the rather general, non-specific nature of the US confrontation with Russia, and that its scattershot strategy is not changing. At present, the sanctions hawks in Congress are doing little more than consolidating the current regime, most likely to ensure that the White House does not kick it into the long grass.
Nothing new to see here
Indeed, the muted reaction within the international investor community is symptomatic of markets already having priced in the risks of the current sanctions climate, which anticipate long-term discomfort but without any sudden shocks. Russian energy companies –, which have been the sanction focus since the start – have adapted to the US sanctions rules, working with
a higher degree of technical independence. Even where more radical proposals are made – such as extraterritorial targeting of (read: EU) companies engaged with strategic Russian projects – their adoption will be slow. This will leave the “hard core” foreign investors into Russia sufficient space to operate.
In this sense, the major market adjustments have already been made. Russian issuance on global debt markets from 2015-2018 amounted to $10- 15bn annually (or 2-3% of global Emerging Market issuance), a sum that could be easily replaced by local financing. Prior to the Global Financial Crisis some ten years ago Russia-related issuance on international debt capital markets amounted to some $30-50bn annually (some 15-25% of global EM issuance).
International cross-border banking sector exposures towards Russia have dropped from some $270bn in 2013/14 to around $100bn currently, mostly impacting European banks with local subsidiaries in Russia. For comparison on the much smaller Turkish economy international banks run cross-border exposures in the excess of $200bn. Moreover, compared to Russia deleveraging has been shallow here, despite
a significant local financial crisis in 2018.
Elsewhere, non-resident exposures to the domestic ruble-denominated OFZ treasury bills market were also trimmed in 2014 and 2018, with drops from around 27% to 19% and 34% to 23%, respectively. The share of Russian assets in global indices and portfolio weights has decreased
from 9% to 14% some seven to ten years ago to around 3% to 7%, indicating that their systemic importance and focus by global investors has weakened. If this trend continues, further financial market sanctions against Russia will no longer be a systemic risk - neither for the USA, nor global financial markets nor for Russia.
Paving the way: suffocation over collapse
The market might have priced in the risk,
but DASKAA 2.0 should nonetheless not be underestimated. First, it continues to pave the way for escalation in certain areas, especially LNG, which is a relatively low-risk avenue
for Washington given that it would serve its commercial interests and not antagonise the EU (in contrast to potential sanctions in, which EU majors are engaged, such as Nord Stream 2) or powerful US oil companies.
Second, DASKAA 2.0 would incorporate a wide and nebulous range of Russian foreign policy activities into the range of offences for, which new sanctions could be justified, such as the proliferation of chemical weapons, international cybercrime, electoral interference and state terrorism. Such offences are difficult to prove – and may not even impact the US directly –
but that is not the point.