Risk Advisory Group - Sanctions & Business in Russia: Today & Tomorrow

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Sanctions & Business in Russia: Today and Tomorrow

Youri Smakouz Oleg Babinov

www.riskadvisory.net


Who implemented sanctions?


Types of sanctions

Restrictions on trading in dual-use goods and technologies

Capital markets access restrictions

Restrictions in the field of oil exploration and production

Asset freezes and travel restrictions

Crimea import restrictions


Targeted individuals

• Military (e.g., Igor Strelkov, a.k.a. Girkin, former insurgent commander)

• Politicians (e.g., Sergey Aksyonov, Crimea PM; Vladislav Surkov, Putin’s advisor)


Targeted individuals (continued)

• Businessmen– State-owned company CEO’s (Igor Sechin, Rosneft; Vladimir

Yakunin, Russian Railways; Sergey Chemezov, Rostec)– Private, ‘Putin’s cronies’ (Gennady Timchenko, Yuri Kovalchuk,

Arkady and Boris Rotenberg)– Ukrainian (the Viktor Yanukovych entourage)


Sanctions: the USA (SSI List)

• New equity or debt: 30 days (Bank of Moscow, Gazprombank, Russian Agricultural Bank, Sberbank, Vnesheconombank, VTB Bank)

Directive 1 (financial sector restrictions)

• New debts: 90 days (Gazpromneft, Novatek, Rosneft, Transneft)

Directive 2 (energy sector restrictions)

• New debts: 30 days (Rostec State Corporation and subsidiaries)

Directive 3 (defence sector restrictions)

• Oil exploration-related goods, services and technology (Gazprom, Rosneft, Lukoil, Surgutneftegaz, Gazpromneft)

Directive 4 (energy sector restrictions)


Targeted companies

Banks (state-owned: credit restrictions; owned by ‘cronies’)

DefenseConfiscated Crimean companies (including Chernomorneftegaz)

Oil and gas (credit restrictions, Directive 4)

Specific companies controlled by ‘cronies’

All controlled by targeted individuals


All sanctions summarised in a table


Searchable database


Reaction of targeted individuals

• Beneficial ownership already concealed

• Sales of stakes to co-shareholders (e.g., Gunvor)

• More business with state companies

• Considering legal action


Complex ownership structures: examples


Effect of sanctions in Russia

• Financial sector: felt immediately and directly

• Anti-sanctions (Russian food embargo): felt directly, shooting itself in the foot (but impacting on EU economies, too!)

• Oil and gas sector: limited direct effect on the economy BUT great effect on the sector


• Sanctions affected the already slowing Russian economy• The GDP fell down by 4.6% yoy in the second quarter of 2015

The Ministry of Economic Development expects the GDP to fall 3.3% yoy in 2015

The effect on the economy


• Annual inflation accelerated to 16.9% in March 2015 (5.3% in June)

• Industrial production fell sharply in the second quarter of 2015




• Rouble falling to a record low against the US dollar and Euro • Effect of sanctions on the economy is amplified by the

decreasing oil prices


Factors supporting the stability of the Russian economy:

• Low level of public debt (14% of GDP as of 1 August 2015)

• Substantial gold and foreign currency reserves - $366.4 billion

• Sovereign funds (Reserve Fund and National Welfare Fund) - $70.7 billion and $73.8 billion respectively

• Low unemployment rate (5.3% in July 2015)

The effect on the economy: is it that bad?


Prospects and most likely future scenarios


Thank you for your attention


Q&A


[email protected]@riskadvisory.net

Risk Advisory Group - Sanctions & Business in Russia: Today & Tomorrow

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