The United States announced harsh sanctions against Russia which, this time, could actually harm Russia’s economy. The biggest name on the list is Rosneft, which owns major deals with ExxonMobil.
“We have said for quite some time that Russia’s failure to take some of the steps that would de-escalate the conflict in Ukraine put them at risk of facing greater isolation and greater economic consequences,” Josh Earnest, the White House press secretary, said.
“Russia has continued to destabilize Ukraine and provide support for the separatists, despite its statements to the contrary,” Under Secretary for Terrorism and Financial Intelligence David S. Cohen said in a statement. “Because Russia has failed to meet the basic standards of international conduct, we are acting today to open Russia’s financial services and energy sectors to sanctions and limit the access of two key Russian banks and two key energy firms to U.S. sources of financing, and to impose blocking sanctions against eight arms firms and a set of senior Russian officials.”
The sanctions are not perfect, but they are a major start. The businesses, which include Gazprombank (the financial arm of gas giant Gazprom), Novatek, Vnesheconombank, and Kalashnikov, will find it very difficult to finance long-term projects since the department allows financing for up to 90 days only. In the oil and gas industry, the majority of projects are long-term and last longer than 90 days.
However, there is a Europe loophole for the financial companies. In the fine print, the institutions are allowed to borrow US dollars in Europe, and the Treasury Department said America does not have to clear or approve the loans.
Rosneft is Russia’s largest petroleum company, and Igor Sechin, the CEO and president, is already under US sanctions. Rosneft can attribute its dominance in the industry to US loans. It received the loans from Bank of America, Merrill Lynch, and other US banks. In August, Rosneft and ExxonMobil, America’s largest gas company, are scheduled to drill in the Arctic circle. Experts believe there is over $900 million worth of oil under the Arctic sea.
In June, a Morgan Stanley and Rosneft deal for an oil merchanting business won antitrust approval and just needs approval from the Committee on Foreign Investment in the US (CFIUS). Bloomberg said CFIUS might wait until tensions between Russia and the US simmer down, but these sanctions might put a nail in the deal’s coffin.
Another interesting note are the sanctions against the Luhansk People’s Republic and Donetsk People’s Republic. The US and the West did not recognize the referendum from May for these breakaway regions and do not recognize the outcome. The question is this: do the sanctions mean the US recognizes these regions as independent from Ukraine?
People on the list include Alexander Borodai, the self-proclaimed prime minister of the DPR. He is a 41-year-old Russian citizen from Moscow but constantly claims he does not have ties to Moscow. The Treasury Department also sanctioned Feodosiya Enterprises, a shipping company in Crimea, an aide to Russian President Vladimir Putin, and the leader of Russia’s parliament.