New Sanctions Against Russia Have Added Bite

U.S. President Barack Obama formally announces new sanctions against Russia on July 16. (Photo by Alex Wong/Getty Images)

Analysis

On July 16, the U.S. Treasury released the next round of sanctions against Russian, Crimean and Ukrainian groups and individuals. Previous sanctions from the United States against Russian people and entities were widely criticized for not being severe enough.

The new sanctions appear to add potency to previous rulings, with many Russian military firms falling under the "Specially Designated Nationals," or SDN, sanction list. This means that corporations in the United States cannot do business with these companies, which range from military industrial suppliers to credit providers. The new sanctions also prevent providing financing for deals with companies on the revised list. It is worth noting, however, that Russia does not supply much military equipment to the United States. The only deals to be affected thus far have involved the import of Kalashnikov rifles for civilian sale, between 80,000 and 200,000 weapons in total.

For the first time, the United States is using sectoral sanctions against some of Russia's most important firms: Gazprombank, Rosneft, Novatek and Vnesheconombank. If these Russian giants were on the previous Specially Designated Nationals list of sanctions, this would have been a massive breach in relations between Moscow and Washington. Instead, by invoking the sectoral list, U.S. citizens or companies are prohibited from transacting in, providing financing for or dealing in new debt (for longer than 90 days) with the aforementioned persons or companies. In short, the United States cannot finance these Russian firms.
Tough Sanctions Expected

When the United States first started to leak information in April that larger Russian firms would be targeted, each company responded by moving its cash and financing around as an evasive measure. Vnesheconombank, for example, pulled back from international and dollar bonds. Moscow is prepared for such action from the United States, but with Rosneft, Novatek and Gazprom looking for new financial support for their large projects, this limits them in the long term. The new sanctions do not mean that U.S. firms cannot do business with the largest four Russian firms entirely, but it does seriously restrict what can be done.

Following on from the latest U.S. restrictions will be a new sanctions list from the Europeans; an EU leadership summit is presently ongoing. Most likely, the EU list will not be as expansive as the U.S. list. It is also likely that Gazprom, Rosneft, Novatek and Vnesheconombank will not be on the list because these transnational companies do too much business with European banks and businesses.

The United States has moved significantly closer to the red line set by Moscow, and it is possible that Russia will start responding with meaningful sanctions against the United States and its businesses operating in Russia. The Kremlin will likely avoid targeting any U.S. firm that is critical to Russia's energy sector, such as ExxonMobil. However, there are many other financial and energy services firms that Russia could begin to target.

Individuals now barred from the United States include:
Sergei Beseda -- Federal Security Service (FSB) colonel general involved in Ukraine
Alexander Borodai -- Prime minister of the self-proclaimed People's Republic of Donetsk
Sergei Neverov -- Russian deputy chairman in the State Duma
Oleg Savelyev -- Minister for Crimean affairs
Igor Shchegolev -- Aid to the Russian president

The following companies or entities have also been added to the Specially Designated Nationals list. These companies are now prohibited from doing business with businesses in the United States:
Bazalt -- A military industrial corporation
Feodosiya -- An oil products transportation corporation
Sozvezdie -- A military industrial corporation
NPO Mashinostroyenia -- A military industrial corporation
Almaz-Antey -- A military industrial corporation
Kalashnikov -- A military industrial corporation
KBP Instrument Design Bureau -- A military industrial corporation
Uralvagonzavod -- A military industrial corporation
Luhansk People's Republic -- A pro-Russian group in eastern Ukraine

And for the first time, sectoral sanctions have been added for:
Gazprombank
Novatek
Rosneft
Vnesheconombank

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