Economy
6:21 am
Tue April 29, 2014

How Much Will New U.S. Sanctions Affect Russia?

Originally published on Tue April 29, 2014 12:52 pm

Transcript

STEVE INSKEEP, HOST:

Let's examine just how much U.S. sanctions could affect Russia. President Obama yesterday announced the latest measures aimed at punishing Russia for its links to violence in Eastern Ukraine. Russia is accusing the U.S. and its allies in Europe and Japan of resorting to Cold War tactics.

NPR's Corey Flintoff is covering this story from Moscow. Hi, Corey.

COREY FLINTOFF, BYLINE: Good morning, Steve.

INSKEEP: So what will the latest sanctions do?

FLINTOFF: Well, there hasn't been a huge effect so far. In fact, the main Russian stock markets opened higher this morning. Analysts say that's because investors were relieved that the sanctions didn't name any of the major Russian companies that are listed on those stock exchanges. They say the point seems to be that the sanctions are hitting President Putin's closest advisors.

You know, take for example, Igor Sechin. He's the head of the world's biggest oil company, it's Rosneft. He's a former KGB agent, like Putin, and a former Soviet intelligence officer, said to be very close to Putin. Another reason sanctions against him might be a big deal is that it will be the first time that sanctions have hit this close to Russia's oil and gas business.

INSKEEP: Well, let's talk about that. If you are targeting the head of this giant oil company, could that have some broader economic effect, even if there's not an immediate and affect on the stock market?

FLINTOFF: Well, the company itself hasn't been sanctioned, it's just the chief. So it's not clear how much affect would be on Rosneft's partners. But those partners include Exxon Mobil, BP, Shell; all these big multinationals, and it should be enough to make them nervous. You know, BP, for example, owns nearly 20 percent of Rosneft. It's a holding that's thought to be worth more than $12 billion. Exxon has huge investments with Rosneft in the Russian Arctic. So they would be vulnerable if these sanctions spread any further.

INSKEEP: How much effect might there be from sanctions targeting Russian banks which, as I understand it, will make it difficult if not impossible for credit card companies like MasterCard to do business with those banks?

FLINTOFF: So far there are only two more Russian banks that have been added to the list, so they make up a small part of MasterCard and Visa's business in Russia. So that probably won't be a big effect. But now this makes four Russian banks whose cardholders won't get service from these major international credit card companies. And, you know, once again, the main effect of the sanctions seems to be that it creates uncertainty for people. You know, they have to wonder how many other banks might be affected if there were more sanctions added.

President Putin is actually calling for an all-Russia payment system that would replace the international credit cards. At the moment, that seems to be a bit of pie in the sky. But the theory is that it would make Russians less vulnerable to interference from other countries. It would probably take a long time to setup and, even then, it would probably work only in Russia.

INSKEEP: Although, I suppose the underlying message of Putin saying such a thing is that he doesn't intend to be deterred from his course in Ukraine.

FLINTOFF: Exactly right. That seems to be the case. Some analysts have said that they think these sanctions may just cause Putin and his inner circle to step up the pressure against the government in Kiev. You know, the people on this list they're mostly longtime Putin friends and loyalists. They're among the hardest of the hardliners when it comes to dealing with Ukraine. And they're not all that vulnerable. Some of these people are billionaires and their wealth is diversified all over the world.

So the main leverage that the West would seem to have now is the threat that the next round of sanctions would bite a lot harder.

INSKEEP: Are people in Russia surprised the Unite States has not already imposed broader sanctions that would hit more people?

FLINTOFF: It's hard to say. You know, I think in general terms business people have not expected that the sanctions would bite very hard because they're well aware that Europeans are going to be arguing against it. You know, Europe does something like $450 billion worth of business with Russia every year. And their companies and their governments are reluctant to put their economies in danger by doubling down on these sanctions.

INSKEEP: NPR's Corey Flintoff is in Moscow. Corey, thanks very much.

FLINTOFF: My pleasure, Steve.

INSKEEP: This is NPR News.

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