US steps up sanctions on Russia

published 25 July 2014

Last week, the day before Malaysian Airlines flight MH17 was shot down over Ukraine, America imposed further sanctions against Russia over its support for separatists in the region. Various Russian energy, defence and financial companies were effectively stopped from raising money on international markets. But so far Russian markets have largely shrugged off the threat. Europe has been less keen on sanctions 30% of Europe's gas imports, and 24.5% of its petroleum imports, stem from Russia. Along with the potential damage to lucrative trade ties, this helps to explain Europe's timidity so far, says The Daily Telegraph's Con Coughlin.

But there are signs the MH17 disaster "has prompted a stiffening of spines". Good: Europeans should realise "how little they have to fear". Russian counter-measures can't inflict much damage, agrees Ambrose Evans-Pritchard, also in The Daily Telegraph. Russia's is only a $2trn economy about the size of California's. And using gas as a diplomatic weapon wouldn't achieve much at this time of year, when reserves are high and demand is low. It would just ravage Russia's own energy-dependent economy.

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Even if Europe can't muster a united front, plenty of damage will still be done. "The Americans have the power to throttle Russia unilaterally because no European or Western bank is going to defy the US after the [huge] fines imposed on BNP Paribas," says Richard Christopher Granville of Trusted Sources. Russian banks and companies have $75bn of external debt that's due to mature over the next year, making them vulnerable to skittish international investors.

Western firms and banks will also now be even more reluctant to invest in Russia, which desperately needs to expand its productive capacity. Given all this, the Russian market has become more treacherous, and even though it remains cheap we would advise against topping up holdings now.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.