The most dangerous for the Russian economy in the new draft of U.S. sanctions is to block the operations of state banks, warned analysts at Barclays. But the brunt of the sanctions against the Russian state debt will take the ruble OFZ
Photo: Viktor Korotayev / Kommersant
The phantom menace
The blocking of assets and accounts of Russian banks subject to U.S. jurisdiction and prohibit transactions with them American institutions — the main threat, along with the measures against public debt, contained in the latest draft of the us sanctions against Russia, follows from the review of Barclays “Russia and U.S. sanctions” (have RBC). It carries systemic risks for Russia and may be more serious than sanctions against the debt, says Barclays economist Liza Ermolenko.
In represented in Congress by 2 August the draft of the “Act on the protection of U.S. security from the aggression of the Kremlin” (DASKAA) contains a proposal to block the accounts of Russian state-owned banks, among which are named Sberbank, VTB, Gazprombank, Rosselkhozbank, VEB and PSB.
Given the export orientation of the Russian economy and the needs of the oil and gas and metallurgical industries in international operations and repatriation of foreign exchange earnings by converting them into rubles, the proposed sanctions could restrict Russian banks for transactions with international financial institutions, say analysts at Barclays.
“At the moment, these proposals are very broad and most likely needs to be updated, given the potential consequences,” — noted in the review. But in any case, the document, according to Barclays, indicates “a firm intention of the United States to go further than before, to damage Russia.”
The years of isolation: the longest U.S. sanctions
Among other restrictions DASKAA include a ban on operations with Russian government debt with a maturity of more than 14 days (including the bonds of the Central Bank, the national welfare Fund, the Federal Treasury) and the ban on agreement on currency swap with the Bank of Russia, the national welfare Fund or Treasury for more than 14 days. In addition, suggestions for further sanctions against Russian politicians “oligarchs” and their families, a ban on investment in energy projects with state participation and for participation in oil projects in Russia, as well as the requirement to prepare a report on the assets of the President of Russia Vladimir Putin.
The current wording of the document implies the distribution of sanctions on the bonds of the Bank of Russia (OBR), which are used as a tool to regulate Bank liquidity, says Barclays. Currently the amount of outstanding OBR is about 1.45 trillion rubles ($23 billion), i.e. they help to absorb approximately half of the excess liquidity in the banking sector. Measures against the OBR will result in serious implications for monetary policy, and it is unclear whether this is what seeking senators who introduced the bill, wrote economists at Barclays.
Classification as debt currency swaps may be aimed at closing the opportunities to attract Russia’s dollar liquidity, analysts suggest.
The economy will withstand
The brunt of the sanctions against the Russian government debt in case of their introduction will assume the ruble OFZ bonds, while investors in Russian Eurobonds will feel more comfortable, according to a survey. Assessment Barclays, Russia is able to continue steadily to service foreign currency debt.
In turn, according to economists Oxford Economics, potential US sanctions will not lead to the crisis, despite the fact that foreign investors have bought almost 50% of all new debt of Russia, released from January 2016 to February 2018. First, Russia is attracting funding mainly through medium – and long-term paper (70%), and secondly, they will enjoy sufficient demand from local and foreign investors to compensate for the drop American from the Oxford Economics survey of 6 August (have RBC). Now of the 25 largest foreign OFZ holders, who account for 67% of the shares of non-residents, nearly half are companies from the USA, writes the economist Oxford Economics Maya senussi.
According to Moody ‘ s Investors Service, the Russia ready to neutralize the impact of the new U.S. sanctions. Measures to reduce investments in U.S. treasuries and to reduce dependence on the dollar, made the economy less vulnerable to the threat of broader restrictions, said in an interview with Bloomberg, Moody’s analyst Kristin Lindow.
After the sanctions against the aluminum company Rusal Oleg Deripaska, the Bank of Russia has taken additional measures to protect the country’s financial system. During this time Russia sold government bonds United States for a total of $81 billion.