Interviews, INVESTMENT CLIMATE

Vladislav Inozemtsev: Embargo on purchase of Russia’s energy resources?

Invest Foresight discussed the new US sanctions against Russia with political expert, doctor of economics Vladislav Inozemtsev.

Vitaly Belousov | RIAN

– In what respect the new sanction are specifically damaging for Russia? Restrictions on high tech products imports and exports, for instance, are in place irrespective of whatever sanctions.

– For Russia, the new sanctions are most troublesome because they are imposed with no apparent causes which could have lately induced them. Russia has in fact become a factor of the US domestic policy. These days, being a ‘patriot’ in Moscow means disliking Americans. Likewise, being a true American in Washington DC means viewing Vladimir Putin as a personal enemy. As a matter of fact, Russia nowadays has come to face a mirrored projection of the worldview of its own. The only difference is, Americans do not care about the fact Russians dislike the US, since Russia’s exports to the US are below 0.1% of its GDP, whereas ill feeling of the Americans towards Russia can potentially entail serious problems for our nation.

A ban on transfer of advanced technologies is not a matter of concern for Russia, which should primarily be wary of the oil production decline. Yet Russia has already purchased sufficient equipment to maintain production, it can build pipelines all by itself, while drilling on the sea shelf is rather cost-consuming and not really viable. Real troubles will only be caused by restrictions on financial transactions. It appears Russians are indeed close to finding themselves in a situation when domestically they can only use Mir cards (of the national payment system of Russia’s Central Bank), and bring piles of cash when travelling abroad. If there is a ban on dollar-denominated transactions for Russian companies, they will have to make their payments via third country banks.

Yet the major problem is a possible inclusion of Russia in the State Sponsors of Terrorism list. In such a case, a consequence may be an embargo on purchase of Russia’s energy resources which can trigger a full-fledged economic disaster.

– Why Skripal case was chosen as a motive? There is a view that it was a Trump’s trick. As Skripal case does not involve the USA and has not been explicitly investigated by the UK police, it may be dropped as a motive in November should the Republicans win the midterm election. Is such an inference grounded?

– Skripal case has nothing to do with the possible sanctions. Two independent processes should be distinguished. On the one hand, the Congress is attempting to tighten anti-Russian sanctions. The above options relate to the legislation recently introduced by six bipartisan senators. On the other hand, the White House which is often accused of cozying up to the Kremlin by many politicians and media, is also striving to demonstrate its readiness to step up its pressure on Russia. Skripal case-related sanctions are imposed by Donald Trump who tries to show he is not Putin’s running dog. In relation to Scripal case, the US has made rather aggressive steps having expelled more Russian diplomats than any other nation. The new anti-Russian sanctions must now confirm the earlier step was not a mistake. They are not intended to be lifted in November, whatever the midterm election result is. Once the midterm election is over, in less than a year a new presidential campaign will start. There is no point to expect any break.

– How could such sanction affect Russia’s sovereign debt?

– It is clearly outlined in the said legislation submitted to the Congress. If the bill is passed, 180 days later financial institutions of the US and banks of other nations operating in the US market, will have to stop buying new (i.e. issued after that particular moment) Russian bonds and derivatives (such as options for their purchase or futures of their value). That would not restrict possibilities of ownership of securities currently in circulation or, more so, operations of Russian investors in the US market (including purchase of the US treasury bonds by Russia’s Central Bank). Such foreign governments’ assets freezing is only possible if comprehensive sanctions are imposed. Still, such sanctions can only be imposed exclusively if Russia is on the State Sponsors of Terrorism list. A similar step was made in respect of Iran, for example, which had somewhat $100 bln stalled in the US banks.

– Why is Europe keeping away from the new sanctions?

– The sanctions are not in place yet. Europeans do not want to initiate the measures which potentially can politically damage their relationships with Russia. Still, once the sanctions become reality, European banks operating in the USA will terminate whatever transactions with their Russian counterparts found to be on the sanctions list. As for more dramatic sanctions, Europeans have always been more wary of that instrument and have implemented it on more rare occasions than Americans did. I am still certain, that if the Europeans just follow the US line, that will nevertheless could bring up substantial problems for Russia.

By Elena Skvortsova

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