Vladimir Putin’s recognition of two breakaway regions of Ukraine, and his order to send in troops he called peacemakers, does not constitute a “further invasion” that would trigger a broader sanctions package since it’s “territory that they’ve already occupied,” a Biden administration official told Reuters. The U.S. will continue to pursue diplomacy with Russia until “tanks roll,” which it believes could happen at any time. Putin’s announcement will still prevent American investment, trade, and financing in Luhansk and Donetsk, while additional measures from the White House will be announced later today.
What would a wider package look like? The U.S., U.K. and EU are discussing the details behind closed doors, but the assumption is that they won’t impose direct measures on Russia’s energy sector. The country exports nearly 40% of the EU’s natural gas supply, so the penalties could backfire unless additional supply is secured. Instead, the West may sanction other industry exports and Russia’s financial sector – as well as Vladimir Putin’s inner circle – which would be more targeted than the latest round of sanctions.
With Putin’s allies located across the highest levels of industry, the penalties could affect the business interests of oil majors operating in the country like BP (NYSE:BP), Shell (NYSE:SHEL) and Exxon Mobil (NYSE:XOM), and commodity traders like Glencore (OTCPK:GLCNF), Vitol, Trafigura and Gunvor. The last time around, when Russia annexed the Crimean Peninsula in 2014, sanctions worked a little differently. For example, the penalties leveled against Rosneft (OTCPK:RNFTF) didn’t limit its supply or production, but rather restricted its ability to fund future growth by limiting its Western financing, while curbing access to certain technologies used in exploration activities.
Outlook: Reports suggest that the West is preparing a series of sanctions, which could be implemented in successive rounds depending on the degree of the invasion. There is also the risk that Russia may unveil its own counter-sanctions, like severing oil and gas supply completely, which would drive up the cost for consumers. At its worst, it could spark a sanctions war, that could cut Russia’s banks off from the SWIFT international banking system or ban Western investment funds from holding Russian government bonds.
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Originally Posted on: https://seekingalpha.com/news/3802279-us-unveils-some-sanctions-against-russia-holds-off-on-broad-package?source=feed_tag_commodities