Since the first sanctions were introduced in March of last year, we have written about them many times. By now, so many different kinds of sanctions have accumulated that it is easy to get lost in them. At the same time, recent statements from the United States and the EU, as well as statements from the Russian Federation, show that both sides recognize one thing: sanctions are here for the long haul. The United States and the EU do not intend to lift them without substantial changes in Russian policy, including the return of Crimea. President Putin, for his part, now openly states that Russian troops took part in the “special operation in Crimea,” thereby acknowledging that there is no longer any point in hiding it and that we have accepted the West’s reaction and the sanctions.
Since sanctions are clearly here to stay, we (and by “we” we mean Nikita Kulachenkov from the investigations department) decided to summarize the available information and create a special consolidated table. Below, we list the main types of sanctions and the typical situations that arose as a result of their introduction.
This applies to a large number of individuals considered to be involved in the annexation of Crimea and the escalation of the conflict in southeastern Ukraine. A person placed under sanctions is denied entry, any existing visas are canceled, and new visas are refused.
A vivid reaction to the EU entry ban was the recent statement by the patriotic Iosif Kobzon: “Of course, this has spoiled my mood. I was planning to go abroad for medical treatment, but oh well, we’ll be treated here.” Most officials and businessmen barred from entering the United States and the EU commented in the spirit of “I’m proud that my merits have been recognized,” but some modestly complained that they could no longer visit their families living abroad.
Any funds, property, real estate, bank accounts, stakes in companies, or publicly traded securities belonging to individuals or legal entities on the sanctions list are frozen. Until the sanctions are lifted or a special decision is made, the person or entity cannot dispose of that property.
This type of sanction also means that no legal entities from the United States or the EU are allowed to conduct any transactions with persons or entities on the sanctions list. For example, this makes it impossible to carry out bank transfers in U.S. dollars or through European banks.
One of the first and most visible reactions to this type of sanction was Gennady Timchenko’s sale of his stake in the oil trader Gunvor one day before the sanctions formally took effect. Other consequences of the sanctions for Timchenko’s business include his sale of his stake in the insurance company SOGAZ, as well as Gunvor’s sell-off of its Russian assets.
Another notable consequence of the sanctions was the seizure of Arkady Rotenberg’s villas in Italy (not pitchforks, but several mansions) and the subsequent attempt by the State Duma (the lower house of Russia’s parliament) to rush through the so-called “Rotenberg Law,” which would compensate such losses at the expense of Russian taxpayers.
The so-called “sectoral sanctions,” introduced in the summer of 2014, prohibit certain companies from raising financing in the United States and the EU. Legal entities on this sanctions list cannot obtain loans from Western banks, issue bonds, or sell their shares to foreign investors.
Direct examples of the consequences of these sanctions are fairly hard to find, since no one is seizing anything. The main visible example is that Sberbank, VTB, and VEB are trying to challenge these sanctions in court.
But there are plenty of indirect consequences one can infer. For example, Rosneft had to repay about $7 billion in debt to foreign creditors in December 2014. In the absence of sanctions, Rosneft could have refinanced it—that is, borrowed additional foreign-currency funds from the same creditors to repay that debt. Since that proved impossible, Rosneft received a ruble-denominated loan from the Central Bank and happily spent it on buying foreign currency. Do you remember what happened to the ruble exchange rate?
Another indirect sign is the planned recapitalization of banks hit by sanctions. For example, VTB expects to receive as much as $5 billion to cover its losses in 2015. Of course, the need to inject state funds into banks is caused not only by specific sanctions, but also by the general deterioration of the economic situation as a result of Russia’s declining investment appeal, self-isolation, and, of course, falling oil prices.
Companies from the EU are prohibited from supplying Russia with any military or dual-use goods, services, or technologies, and from providing technical or financial assistance (including loans) for such supplies, for the production or maintenance of such goods, or for the development of military technologies. The United States, for its part, has suspended the issuance of licenses for exporting such products and services to Russia.
The situation with the Mistral helicopter carriers has long been covered even on federal TV channels, but we wanted to talk about less visible problems connected with Russia’s lack of the technologies needed to manufacture certain types of products.
For example, the construction of eight corvettes and nine frigates for the Russian Navy is under threat of disruption, because the ship engines were imported from Germany and Ukraine. It is reasonable to assume that developing and producing domestic ship engines will take several years.
The Russian armed forces will not be able to use the two-axle armored vehicle KamAZ-53949, because its engine and gearbox come from the United States, its suspension from Ireland, and its armor from Italy. By comparison, the halt in construction of a laser manufacturing plant in the Novosibirsk Region, or the possible problems facing the Sukhoi Superjet project because of its large number of foreign components and its financing structure involving foreign capital, may seem like only minor issues.
It is only fair to note that the United States, too, could face problems if supplies of high-tech products from Russia were cut off. We are talking about the RD-180 engines for Atlas V rockets, which we continue to supply.
The contracts for the production and supply of these engines were signed in the 1990s. The United States planned long-term cooperation with us and designed its rocket around Russian engines, fully understanding that it would not be easy to give them up. Just imagine: for years the United States has supposedly dreamed of Russia finally collapsing, yet somehow allowed its rockets to be designed around our engines. A paradox.
The sanctions introduced by the EU prohibit supplies to Russia of products and technologies used in offshore, Arctic, and deepwater oil and gas extraction. The United States has suspended the issuance of licenses for exporting to Russia products and technologies related to oil and gas production. The ban covers, for example, software for hydraulic fracturing (fracking). This technology increases well productivity and makes it possible to work with hard-to-recover reserves, of which Russian fields contain a great many—and will contain more and more over time.
At the moment, there are no obvious negative consequences from this type of sanction, but according to some experts, the ban on supplying technology and equipment will affect oil and gas production in the medium term. Russian oil companies will be unable to maintain current production rates or develop new fields, for example in the Arctic. This is indirectly confirmed by Rosneft’s recent statement that it is postponing offshore development by two years.
And of course, another visible effect of the sanctions is Rosneft’s attempt to hire foreign lawyers for 1 billion rubles (about several million U.S. dollars) to challenge those very sanctions.
The import into the EU of goods produced in Crimea is prohibited. EU companies and individuals are also barred from purchasing real estate in Crimea, providing services, supplying goods, making investments in transport, telecommunications, infrastructure, or energy, and participating in any tourism-related business.
For U.S. individuals and companies, the import of any goods or services from Crimea and the export of any goods or services to Crimea are completely prohibited. In addition, the United States may freeze the assets of any persons, including foreign ones, who conduct business in Crimea.
In our view, these sanctions are greatly underestimated and have received far too little attention in the press. In practice, they mean that no major international company will dare do business with Crimea, because it risks having funds in correspondent accounts at U.S. banks frozen. As long as U.S. and EU sanctions remain in force, Crimea will not see hotels from international chains or official car dealerships, and cruise liners will not call at Crimean ports. Yes, a small investor from China (or Russia) can buy a hotel in Gurzuf and hope that the United States never finds out. But if it does, entry to the United States could be banned.
What is more, large Russian companies will not want to operate in Crimea either, because that creates a risk that their funds will be frozen during international settlements. Try finding branches or ATMs located in Crimea on the Sberbank website. Against that backdrop, proposals to turn Crimea into a free economic zone look rather absurd. The only people who could invest there without much concern are those already on the sanctions list, who have nothing left to lose in the United States. The only question is whether they will want to. Timchenko has already said he is afraid he may “not be able to handle” the bridge across the Kerch Strait.
The last type of sanction was introduced by the United States alone. It provides for the possible blocking of funds and transactions for any financial institutions that deal with persons or entities on the U.S. sanctions list. If any bank anywhere in the world transfers funds for, say, Sechin, and the United States finds out, that bank could suffer serious consequences and would no longer be able to clear transactions through U.S. banks.
This last type of sanction is not mandatory and is applied at the discretion of the President of the United States. But the very existence of such sanctions is an extremely strong warning to banks and companies around the world that they should avoid dealing with Russia in certain areas and with certain individuals and legal entities.
Looking at this list, it becomes clear that the price for the war with Ukraine will be very bitter, both for Russia as a whole and for Crimea in particular. You can see it in the shift in official rhetoric from “no sanctions can frighten Russia” to “sanctions undoubtedly harm our economy” or even “consume less food, use less electricity.”
As a result of the “Crimea operation,” the country has isolated itself from many of the benefits of Western civilization—finance, technology, investment, and, most importantly, trust. Now we are supposed to develop on our own. Is such development possible amid the economic and administrative collapse of a state where the courts do not function, corruption is extraordinarily high, top officials lie openly, criminal cases are fabricated, and politicians are murdered right by the walls of the Kremlin?
For your convenience, we have compiled information on sanctions into a special summary table. In our table, we wanted to show not only the lists of sanctioned companies, but also the substance of the sanctions imposed, since the restrictions on Bank Rossiya differ from those on Lukoil. We also indicated the grounds on which each sanction was introduced. We think this kind of classification by sanction type will still prove useful to us, both if sanctions are gradually lifted and if they are tightened.
Please note that the information provided here relates only to U.S. and EU sanctions. Sanctions imposed by other countries were not considered, because in many cases they duplicate U.S. and EU sanctions, or are less severe, and their impact on the Russian economy is significantly weaker.
If you would like to use our table, please include a link to navalny.com.