Edward Culchenko
As you probably know, the USA and the EU have been threatening Russia with tough sanctions for a few weeks if the latter doesn’t withdraw the troops from the Crimea. Indeed, the Ukrainian political crisis is far from being over. On top of that, the situation keeps escalating as we are nearing the referendum in the Crimea scheduled for March 16th. The referendum is going to decide whether the Crimea is a part of Ukraine or Russia…
While the situation in the region remains unstable, Brussles started working on possible sanctions against Russia. So, what are the possible scenarios of this conflict? Let’s ponder on this question together with Masterforex-V Academy.
At this point, the Western powers are considering several possible measures against Russia:
1. Western leaders may ignore the G8 summit in Sochi.
2. Russia may be excluded form the elite G8 club.
3. Russia may be excluded from the WTO.
4. The West may try to freeze that part of Russia’s gold-and-currency reserves that are invested in US T-bonds.
5. The West may well freeze the finances and assets that belong to Russian companies and politicians.
6. The USA and the EU may withdraw their investments from Russia.
7. Several trade sanctions and limitations may be imposed on Russia.
8. The USA may well try to hinder Russia’s access to credit markets.
9. The EU has already suspended the bilateral talks with Russia on simplifying visa regime.
10. The USA has already suspended all the military contracts with Russia.
Apart from that, there are many behind-the-scene possible scenarios that may take place in the near future (or are already underway but we don’t know about them yet). One of them is the West’s effort to collapse oil prices to undermine Russia’s economic power (it is not a secret that the Russian economy is very dependent on the export of natural gas and crude oil).
Well, now let’s try to figure out which scenarios are more likely to manifest themselves in the near future.
Firstly, Russia’s G8 summit is under threat. Canada, Germany, Italy, Japan, the UK and the USA have already suspended their preparations for the forthcoming G8 summit in Sochi. Such summits have never been disrupted before, so such a scenario may result in a major moral loss for Putin and his government.
As for excluding Russia from G8, this is nonsense. Russia has been a major player in the international political and economic arena ever since its emerged after the breakup of the USSR (which used to be a superpower). Without it, G8 (or rather G7) would be incomplete.
As for the WTO, no country has ever been excluded from it. And there is no clear procedure for that. On top of that, some Russians are negative about Russia’s WTO membership. On top of that, several sectors of the Russian economies have been showing negative tendencies since the Russia entered the WTO. So, the situation is really ambiguous.
What about freezing assets (including bonds)? Even any talks about implementing such a scenario are dangerous to the USA, not to mention the very implementation of this plan. This may lead to the situation when other major holder of US bonds like China may consider these as risky assets and start getting rid of them. If this is the case, the USA may see much greater damage that Russia. So, this idea is foolish in any aspect.
As for arresting assets that belong to Russian companies and politicians, this may be a severe blow to the Russian export-oriented business once implemented. Still, any such scenario may have negative consequences for those who started it. For example, other foreign investors may lose confidence in the Western banking system. So, it would be stupid to risk the reputation and status.
Trade limitations? Well, the external trade between Russia and the USA is minor – some $40bn a year. That is why this step would not undermine the Russian economy a lot. The external trade volume between the EU and Russia is way greater – some $460bn. That is why European economies are more reluctant to talk about trade sanctions against Russia, especially as Russia is the major (sometimes the only) source of natural gas for Europe.
Investment withdrawal? Less likely, especially as Germany alone is represented in Russia by over 6200 businesses. The UK also seems reluctant to deprive Russia of the access to British exchanges and marketplaces.
Limiting the access to credit markets? Well, this one is irrelevant since Russia neighbors with a generous partner and ally - China.
The visa regime talks are irrelevant in this aspect, especially as this may well have nothing to do with the current situation and such talks can sometimes be too prolonged.
As for military contracts between the USA and Russia, the USA is more interested in them than Russia.
Oil prices. Well, this one is a serious issue to consider. Still, oil prices cannot be manipulated and controlled freely. Ultimately, we still have the OPEC with oil production quotas. Still, if the quotas are raised, Iran will definitely benefit from that (after the sanctions were canceled). Saudi Arabia would definitely prefer curbing the quotas to punishing Russia.
Meanwhile, oil prices are slightly down on higher US oil inventories. The chart below, courtesy of Masterforex-V Academy, reflects the current state of affairs in the market of WTI:
So, the Russian Ruble may be the only victim of such sanctions. The Russian currency is currently weakened and sensitive about anything that concerns Russia. Masterforex-V Academy says that the move of USDRUB started on March 3rd form 36.770 will be completed when the price breaks 36,553. Until then, the Ruble has all chances to recover against its American counterpart.
All in all, sanctions against Russia may affect the Russian economy and currency. Still, this won’t be a devastating blow. Anyway, there are many emerging economies in the world that are beneficial to trade and cooperate with. This is exactly what Russia is currently doing.
Edward Culchenko
