BP warns of sanctions pain

The US and the EU joined forces this week to hammer out the harshest sanctions against Russia since the Cold War. So far, the EU has merely targeted a few individuals. Now it is set to take action against Russian banks, the oil (but not gas) industry and the military.

There has been a clampdown on future arms sales, while major state-owned banks will not be able to tap European capital markets, and high-tech oil exports are no longer available to the Russian oil sector.

The US has matched many of the European measures and has now placed restrictions on almost all the biggest banks with state ownership of at least 50%. Russia has already started to retaliate, banning Polish fruit and vegetables.

Companies are beginning to fret about the impact of sanctions and counter-sanctions, with BP saying they would threaten its joint venture with oil giant Rosneft and Renault warning its sales could slump.

What the commentators said

“It’s a watershed that Europe is moving to sector-specific sanctions”, said John Lough of think-tank Chatham House, and represents a “turning of the screws”. There was little choice in the matter, said The Times. “If ever a policy can be said not to have worked, it has been that of trying to entice Vladimir Putin into the community of responsible democratic leaders.”

Instead, he has destabilised his neighbour and continues to stoke the violence in eastern Ukraine, accompanies by a “propaganda operation worthy of a previous era in Soviet history”.

We could be in for a long stand-off, as Wirtschaftswoche pointed out. The worry is that Putin sees his mission as restoring Russia’s self-esteem, which was gravely damaged by the collapse of the Soviet Union, and if that means a nasty squeeze on the economy, so be it. But his Ukraine campaign has also boxed him into a corner.

Having hyped up the populace with relentless propaganda, any climb-down or concession, no matter how small, would be perceived as a major defeat. So we are likely to see plenty more firms lining up to warn that their business is going to suffer.

In BP’s case, though, the fuss seems overblown, said Allister Heath in The Daily Telegraph. BP ended up paying £15bn for its stake in Rosneft last year, and has already pocketed almost £1bn in dividends. That follows its $8bn investment in a previous joint venture, which yielded $15bn in dividends.

Even if all its Russian assets are confiscated, which is highly unlikely, it will have done well in Russia. In the US, by contrast, its provisions for the 2010 spill have hit $43bn. “Investors are worrying about the wrong continent.”


Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.