Russia Watch: Aligned US/EU sanctions this time around ... more to come
The US, EU and UK announced coordinated sanctions against Russian officials/entities. US authorities are likely to kick the sanctions can down the road. We see limited willingness of the EU to confront Russia further short-term — if there are no further political hiccups.
Moderate and coordinated EU/US/UK sanction hit
On 2 March, the US announced a new batch of sanctions against Russian officials/entities in response to the situation with Alexey Navalny, closely coordinated with the EU plus UK. The market reaction in the USD/RUB rate was low-key, finally the RUB even strengthened against the USD. Overall, the newest batch of coordinated international sanctions is rather limited in its economic/market impact, targeting mainly officials plus the military complex. Overall, the measures target seven senior Russian officials and 14 entities involved in chemical production (13 commercial parties, one government research institute). Earlier, the EU announced the list of sanctioned individuals that includes Russia’s Investigative Committee Head Alexander Bastrykin, Attorney General Igor Krasnov, National Guard Chief Viktor Zolotov and Federal Penitentiary Service (FSIN) Director Alexander Kalashnikov (entry bans and asset freezes); Link: EU document and US update. Although such mild response (despite Biden’s tougher stance towards Russia) is in line with our base case scenario, we believe that the sanction risk premium in Russian assets will not disappear soon, as sanctions will remain on the agenda in the coming months.
What's next?
US authorities are likely to kick the sanctions can down the road. On a strategic level US authorities are not interested in "[...] ... seeking to reset our relations with Russia, nor are [we] seeking to escalate". On an operative level US authorities continue to assess the alleged Russian involvement in cyber hacking, election meddling (2020) and killings of US soldiers in Afghanistan, according to official sources. On those agendas US authorities are likely to move not in sync with the EU and more punitive measures are possibly still in the pipeline. Going forward it will be key to what extent the US can push the EU for more far-reaching sanctions. Here it will be decisive how the political situation in Russia continues to unfold — also in the run-up to the Duma elections in autumn 2021. Without major further hiccups in the political sphere, we currently see little willingness in Europe to confront Russia even more in the short term. However, German elections will be key here from a strategic perspective. Overall, we expect no FX market shocks in the foreseeable future as we believe that the current USD/RUB exchange rate contains a decent sanction premium of 10-15% to its equilibrium level.
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Gunter DEUBER
Austria Gunter Deuber is heading the Economics and Financial Analysis division (Raiffeisen Research) at Raiffeisen Bank International (RBI) since 1 January 2021. Since 2011, Gunter Deuber has held leading positions in RBI's Economic and CEE Research and has continuously expanded the cooperation with his research colleagues in RBI’s subsidiary banks in CEE. Since the early 2000s, he has been analysing economies, banking sectors and market topics with a focus on CEE and EU/euro area topics for RBI in Vienna, but also in the international (investment) banking context in Frankfurt. He regularly presents the views of Raiffeisen Research and his research team at meetings with investors and clients. He is a well sought-after speaker at landmark events in the finance and banking industry and a guest lecturer at several universities/teaching institutions. In 2019, he was nominated for the US State Department's IVLP (International Visitor Leadership Program). Gunter has published several edited volumes on Euro/EU crisis issues and published various articles in professional journals and industry magazines. Outside the office, Gunter enjoys travelling with his family and long-distance running.
