Center for Strategic Assessment and forecasts

Autonomous non-profit organization

Home / Economy and Finance / Markets: estimates and projections / Articles
New US sanctions against Russia: when waiting for the fall of the ruble
Material posted: Publication date: 04-01-2018
It is expected that in 2018 the United States will announce new sanctions against Russia. They are, in fact, will be the first global financial sanctions against our country (the former is largely personal and sectoral) and can very seriously affect the Russian economy. Our experts tried to predict what will happen with the Russians, and that, first and foremost, you need to pay attention to survive the new year with minimal financial difficulty.

Western, mainly American sanctions against Russia, imposed after the annexation of Crimea to our country can be divided into three categories: personal relating to specific businessmen, politicians and officials, as well as state companies; sectoral, applying to the mining and the banking sector; the economic, the purpose of which is the imbalance of trade relations of Russia with the outside world in General.

Russian oligarchs filled the Park Avenue

At the senior officials and close to the oligarchs, confiscated visas, the producers had to change American and European technology and equipment to Asian counterparts, the Corporation lost access to foreign loans. The economy of Russia was shaken, but complete collapse did not lead.

Meanwhile, Washington UPS the ante and prepares our country in 2018, which will be marked by Yellow earth Dog, a new package of political and economic constraints. The new sanctions will gradually introduce from January 29.

But already by February, the American administration must present to Congress a detailed report "the most influential Russian oligarchs", about their relationship with the government, about corruption, the size of the state and sources of income.

The results should be developed a bill whose scope goes far beyond the measures to date have been taken against our country. Unprecedented inspections undergo not only the rich Russians, but also members of their families, and all those who deals business with them in the West.

According to Daniel fried, a former coordinator for sanctions of the administration of former President Barack Obama, Russian oligarchs have flooded Washington with lobbyists and lawyers, so over them is an urgent need to establish control.

Debt payment is red

In turn, the U.S. Treasury until the beginning of may will have to submit to the Congress a report on the impact of the introduction of possible new economic sanctions. The report does not mean that restrictions will be imposed, but they make it clear what should be prepared. Congress should confirm that the new restrictions are placed in the policy of Washington against Moscow. To doubt that the document in one form or another will be approved, it is not necessary — a preliminary list of sanctions already approved by the Senate and the President of the United States Donald trump.

The first item of new trade sanctions Directive is the ban on the purchase by American investors of new Russian government bonds and a boycott of circulating releases. This measure is stipulated by the law "On combating the enemies of America by sanctions," which trump signed August 2, 2017.

Attack of the Russian public debt could become a serious factor of pressure on the ruble. The strengthening of the Russian currency against the U.S. dollar in the period of 2016-2017 years was largely due to the high activity of foreign exchange players. Non-residents engaged in dollars at low rates outside of Russia, converted funds in rubles and bought them on the Russian OFZ, thus earning the difference between the real rates in the US and Russia.

Assessment of Bank of America, foreign investors controlled $51 billion of Russian sovereign debt. On Federal loan bonds (OFZ) accounted for over us $37.2 billion, the Bank of Russia notes that in recent months, the presence of non-residents on the OFZ market expanded. If in August, their share in Russian state debt barely reached 30%, now it exceeds 33%.

Capital inflows to such an extent support the financing of the deficit of the Russian budget and is an anchor of stability for the ruble. The imposition of sanctions in relation to OFZ could provoke their sale is not only the us but also other investors. According to the head of the Directorate of analysis of debt instruments "URALSIB" Olga Sterinol, even if the measures will only affect new bonds, they would reduce the position of foreigners in the sovereign debt of Russia for 10%, equivalent to a capital outflow of more than 200 billion rubles.

Due to the loss of interest in OFZs, will decrease the credibility of any Russian investment instruments, including the ruble. According to leading analyst GK TeleTrade Mark Goichman, the mass exit of foreigners from OFZ could bring the dollar to 65 rubles. Also, increase the rate of inflation.

Defensive recipes from Russia in this case not so much. Currency OFZ can offer internal customers. According to various estimates, domestic banks have accumulated about 2 trillion rubles, will not be involved in investment projects or transactions for the purchase and sale. Through these means they could neutralize the effect of the departure of residents from OFZ. However, it still would need a currency that the bankers would seek on the domestic market, fueling demand for dollars and euros.

The Ministry of Finance can also reorient the placement of OFZ on the financial group that are not subject to sanctions, including from Asia. According to the head of the Ministry of Finance of Russia Anton Siluanov, in the near future on the Moscow stock exchange, Chinese investors will be able to buy Russian Federal loan bonds, imitated in RMB. However, there is an unpleasant moment — the Ministry of Finance will likely have to raise interest rates for this type of loans, in order to attract financiers from China.

The subscriber is out of reach

In the second place a new program of sanctions Washington is a turn off Russia from interbank SWIFT system operating. This limitation may affect every citizen of our country using Bank cards. SWIFT provides rapid exchange of information about payments, guarantees and letters of credit. This system uses about 11 thousand organizations in more than 200 countries. Russia is one of the most active participants SWIFT: our banks are the second largest in the world by number of transactions (second only to the us credit agencies), and the fifteenth volume of the transactions.

In case of disconnection from SWIFT, our country at risk of financial exclusion, as this system draws the entire world banking structure. On the verge of collapse will be of the Treaty for export and import, increase the time and number of delays in the transfer of funds, transactions will become more expensive. Russian banks will have to hold internal calculations through correspondent accounts of the Central Bank, and external - to negotiate directly with the counterparty. Will appear the mediators, who for a percentage will help to commit the transaction via SWIFT.

In General, the process of exchange of financial information will become much slower and more expensive, and finding alternative ways threatens to take a lot of time, because in addition to speed and price, users will have to seriously worry about the level of protection.

However, if Washington followed by the European Union decides to really punish Russia with SWIFT, the restrictions were likely to affect only the part of our banks. Even taking at the time, similar measures against Iran, Western countries were cut off from SWIFT, only 14 of the 30 credit organizations.

However, as suggested by a senior analyst "Alpari" Roman Tkachuk, "disabling Russia from SWIFT means the actual Russian banking system off from the world: the dollar could jump to 70-80 rubles, which will be a substantial shock to the domestic economy".

Chart the collapse of the ruble

The biggest currency shocks concerning the sanctions confrontation, experts expect before and immediately after the adoption of the American law on new sanctions against Russia, and then as the realization of these claims to life. The first can happen at the turn of January-February of 2018, and there is a risk that its reverberations will be felt until March.

The jump is linked to the Congress on the introduction of a new package of sanctions. "No one doubts that Washington will tighten pressure on the Russian economy, however, it is not clear how far the Americans are willing to go on this again: may be partially defined order of operations with Federal loan bonds and confirmed the position in relation to the borrowing and the issue of preserving access to SWIFT will leave until next time.

By the way, the situation with bonds is relatively transparent: when the yield on Russian OFZs will continue to grow, it will become obvious that punters buy them urgently for a future mass sales. At this point, the OFZ yields could rise from the current 4-5% to 9-10%. When this figure starts to fall sharply, it will be clear that investors leave this instrument and you need to prepare for the next collapse of the ruble", — considers the chief of analytical Department UK "BK-Savings" Sergey Suverov.

The following threat for the ruble, the company should expect in may when the U.S. Treasury will release a forecast on how new sanctions will affect the economic situation of our country. If the course is on the continued deployment of U.S. sanctions programs are confirmed, the attack may be dual — in June summit of the OPEC where the decision on the cancellation of the deal on limiting oil production, which is also a negative impact on the rouble.

More distant future the sanctions confrontation between Russia and the West, and how this struggle will affect the value of the Russian currency, experts predict not in a hurry. "We have to deal with many circumstances that will influence on the Russian economic situation in General and its components — exchange rate, inflation, oil prices, says Suverov. — Trying to predict the future, we must rely on the already mentioned geopolitical factors, and current events, in particular, on the outcome of meetings by the world's Central banks regarding interest rates on loans. Movement possible has a diverse and up and down. One thing is certain — the Russian economy and the ruble need to defend its position and stay on them until the next financial period. However, the year to be hot".

Help "MK": New economic sanctions against Russia:

In December 2017 was a reduction in the maximum term of financing of Russian banks under US sanctions, from 30 to 14 days and oil and gas companies — from 90 to 60 days.

From February 2018 the ban on the provision of technologies and services in new projects sanctioned oil and gas companies will spread not only in Russia but also in foreign projects. In the sanctions lists may include enterprises of railway, transport and metallurgical industries.

The US President Donald trump may get the sole right to impose sanctions against foreign investors in Russian export pipelines, and other Russian companies from the sanctions list.

Nikolay Makeev


Tags: Russia , USA

RELATED MATERIALS: Economy and Finance