Youri Smakouz, Associate Director at Risk Advisory Group Russia, Eastern Europe and Eurasia, gave a general political and economic overview of the current Ukraine-related sanctions and concluded by expanding on their impact on the Russian economy and its investment climate. Oleg Babinov, Head of Risk Advisory Group Russia, Eastern Europe and Eurasia, continued the presentation, giving an evaluation of prospects and predicting the most likely future scenarios for the current sanctions regime.

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Sanctions & Business in Russia:
Today and Tomorrow
Youri Smakouz
Oleg Babinov
www.riskadvisory.net

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Who implemented sanctions?

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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

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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)

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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)

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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)

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Targeted companies
Banks (state-owned: credit restrictions; owned by ‘cronies’)
Defense
Confiscated Crimean companies (including
Chernomorneftegaz)
Oil and gas (credit restrictions, Directive 4)
Specific companies controlled by ‘cronies’
All controlled by targeted individuals

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All sanctions summarised in a table

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Searchable database

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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

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Complex ownership structures:
examples

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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

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• 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

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• Annual inflation accelerated to 16.9% in March 2015 (5.3% in June)
• Industrial production fell sharply in the second quarter of 2015
The effect on the economy

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The effect on the economy
• 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

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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?

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Prospects and most likely future scenarios

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Thank you for your attention

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Q&A

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oleg.babinov@riskadvisory.net
youri.smakouz@riskadvisory.net