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bne June 2018
Opinion 55
ended in a Pyrrhic victory as they seem to have done as much damage to US business interests as Russian.
The new US sanctions that singled out Oleg Deripaska and
his Rusal and other companies in the Specially Designated Nationals And Blocked Persons List (SDN List) have been a “game changer”. Previous sanctions stopped those listed from issuing new shares and bonds, but the new sanctions forbid US investors from owning existing securities and gave them just 30 days to sell (the deadline was May 7).
The upshot has been chaos on the aluminium market where prices soared to record highs, and wails of pain from US pen- sion funds, among others, that not only hold these securities, but following Russia’s upgrade to investment grade earlier this year, have to own some Russian assets.
It has taken two weeks, but the US Treasury Department (USTD) that oversees the sanctions regime was forced into an inglorious climbdown two weeks later and has given investors five months to unwind their positions, which will still be hard as the problem remains: who are you going to sell them to?
But the sanctions seem to have worked if their goal was to change Russia’s behaviour. Russian President Vladimir Putin has ordered his media machine to tone down its anti-American rhetoric and the buzz of diplomatic activity suggests that both sides are look- ing to find a new deal. This was no Pyrrhic victory for the US after all, but has been an expensive one, so expensive that the USTD is unlikely to extend sanctions to more oligarchs for the time being.
How much have the sanctions cost Russia? It’s hard to say. Russia’s oligarchs immediately had $16bn wiped off their wealth as stocks fell in panic selling after the sanctions were announced, but the stocks have since recovered much of the ground lost.
The Central Bank of Russia (CBR) said that the banking sector will lose RUB100bn ($1.6bn) as a direct result of the sanc- tions, due to revaluations and currency effects. But if you start adding in the IPOs and SPOs that are already being delayed and the investment that won’t come the cost is a lot higher. bne IntelliNews totted up some obvious costs in an editorial recent- ly and came up with the number: $150bn.
Russia can weather a blow like that. It has $450bn in gross international reserves (GIR) and with oil at about $75 per barrel, after the deleveraging and cost cutting of the last three years Russia Inc is back in profit; the country can live without international financing and as such is sanction- proof. Indeed the irony is thanks to the sanctions the value of Russian debt has plummeted so Russian companies have started to buy back their bonds at bargain bucket prices, which makes them even more resilient to sanctions than before. Oil major Lukoil announced it was buying back $1.5bn worth of its own bonds.
Europe’s Pyrrhic victory
Both Putin and Trump are willing to pick up these huge bills in their geopolitical standoff. The big loser in all this is Europe, which is facing a Pyrrhic victory in a war it didn't start.
The ruins of Carthage. The US is increasingly following a policy of “Carthago delenda est” – Carthage must be destroyed.
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