Russia squeezed by new sanctions
News of atrocities in Ukraine has spurred the West to further action. Emily Hohler reports
Nato foreign ministers met on Wednesday after the discovery of dead civilians in Bucha “spurred” Western leaders to ratchet up pressure on the Kremlin and prompted Joe Biden to call for Vladimir Putin to be tried for war crimes in Ukraine, says Ellen Francis in The Washington Post. The new penalties will include a ban on all new investment in Russia and tighter sanctions on financial institutions and individuals. On Monday, the Biden administration blocked Russia from making debt payments using dollars held in US banks, a move designed to deplete its international currency reserves, which could push Russia into its first foreign-currency debt default in a century, say Alan Rappeport and Eshe Nelson in The New York Times. Russia will now have to choose between draining the remaining dollar reserves it has in Russia or using new revenue (eg, from exports) to make bond payments.
If Russia does default, sanctions will make it “extremely difficult” to negotiate with bondholders to restructure its debts; nor will it be able to ask the IMF for help, say Kate Davidson and Victoria Guida in Politico. It will affect Russia’s credit rating and ability to access debt for years. There are also fears that a default could “trigger a global financial crisis”, although the IMF’s managing director Kristalina Georgieva has said that the total exposure of banks to Russia– around £120bn – is “not systemically relevant”.
In a counter-move, Putin has said that “unfriendly” nations must start paying for their gas in roubles or have supplies cut off, says Natassia Astrasheuskaya in the Financial Times. The main impact is political. Putin wants to “force the West to breach its own rules by having to interact” with Russia’s banking system. Russia’s gas sales to Europe, at $350m a day, “already severely undermine the effect of Western sanctions” and, however the West pays, Moscow gains foreign currency that it can use to buy imports or prop up the rouble (which has rebounded to where it stood against the euro six months ago).
Is a full energy embargo next?
The big fear, particularly in Germany, is that Moscow might turn off the gas taps, says an FT editorial. In reality, doing so would cause “immense damage” to its own economy. There is no other destination for its Western Siberian gas. After Russia’s storage ran out, it would have to cap its gasfields, which would then deteriorate. All Putin has achieved is to “further” erode trust in Russia as a supplier and harden resolve to end reliance on imports.
A full energy embargo is “unstoppable”, says Ambrose Evans-Pritchard in The Daily Telegraph. Sanctions have failed. Russia’s current-account surplus is expected to rise to $200bn-$240bn due to the steady flow of revenues from hydrocarbons and metals. With winter over, Europe can “muddle through until next November”. Now is the time to act. “The calculated gamble is that Putin would be forced to the table long before then.” Germany (whose GDP could fall between 0.2% and 6% as a result of a total ban, according to estimates) is the only country standing in the way. It is worried, not just because of its energy dependence (it gets 40% of its gas, 50% of coal and 33% of its oil from Russia), but because much of its energy infrastructure is majority-owned by Russian firms. Confusion over ownership of Gazprom Germania has led Germany to put it under state control. Nonetheless, two-thirds of Germans “back the Polish plan for a full cut-off of energy purchases”, a ban on port entry for Russian ships and an expulsion of all Russian banks from the Swift payment system. Die Welt is accusing the German government of “joint guilt for the massacres of Bucha and Mariupol”. “This is the new mood.”