Brace yourself European companies – you may be taking a hit.
Twenty-eight European national ambassadors met this morning in Brussels to discuss the harshest sanctions yet aimed at the Kremlin.
The European Union—Russia’s largest trading partner—is expected to move as early as today to restrict transactions with Russia’s state banks, as well as limit technology exports vital for the country’s oil and weapons industries. The White House has vowed to do the same.
European companies have begun to warn of the potential impact of increased sanctions on their businesses.
“If further international sanctions are imposed on Rosneft or new sanctions are imposed on Russia or other Russian individuals or entities, this could have a material adverse impact on our relationship with and investment in Rosneft, our business and strategic objectives in Russia and our financial position and results of operations,” the BP statement said.
Renault, the French carmaker, said deliveries to Russia had fallen eight percent in the first six months. “We’re in a situation where it’s complicated to know what sanctions will be implemented and what their impact will be,” Jerome Stoll, a senior Renault executive said.
The expectation is that the EU will agree to “phase three” sanctions against Moscow that will hit entire sectors of the Russian economy as opposed to individuals or entities.
President Obama spoke with his German, British, French and Italian counterparts yesterday and all leaders are in agreement that they must act in unison in order to actually affect Putin’s calculus.
“They agreed on the importance of co-ordinated sanctions measures on Russia for its continued transfer of arms, equipment and fighters into eastern Ukraine,” the White House said in a statement following the call.
In a separate statement, Downing Street added: “Leaders agreed that the international community should . . . impose further costs on Russia and specifically that ambassadors from across the EU should agree a strong package of sectoral sanctions as swiftly as possible.”
Putin knew this was coming and has been digging in his heels. In a televised speech last week, he warned that, “rivals still seek to undermine the country “in the economic sphere and politically.”
Some argue that Putin made a grave miscalculation in assuming that because of their economic ties with Russia, European countries would never push for tougher sanctions.
Moscow “thought that the West wouldn’t go further” with sanctions because the risk of economic blowback would “outweigh moral principles,” Alexei Venediktov, editor of independent Ekho Moskvy radio said.
But I am never one to underestimate Putin and it’s relieving to see that Western leaders are thinking the same. We cannot know how far he will go in Ukraine, especially with his back against the wall.
The Kremlin has been working steadfastly to prepare Russia for further international isolation, but that doesn’t change the fact that this new round of sanctions will pose a tremendous economic and political challenge for Russia.