The attack on a civilian airliner and the killing of all of its passengers and crew seems to be galvanizing western opinion against Russia. When the pot in Ukraine first started boiling over and Russia annexed Crimea, the sanctions that were imposed by the US and the EU were largely symbolic. There has always been the political reality that Germany and most of the EU were less willing to take an aggressive posture toward Russia than the US and UK. That general picture is now changing in some very material ways.
U.S. Sanctions On Russia Are Financial Warfare
On June 17th, the US announced further sanctions against Russia because of its support for rebels in the Ukrainian civil war. The new sanctions are widely considered to be tough. But they are also difficult to understand. The extent of their legal and practical application is by no means clear (yet very clever). However they are interpreted, they are bad news for Russia.
The article quotes some key passages from Treasury Executive Order 13662. It is written in convoluted bureaucratic legalize and nobody, likely including the people who wrote it, are really clear about what it will mean in practice. The Forbes article attempts to make some guesses.
The sanctions that are causing the most confusion are those applied to the energy companies Rosneft and Novatek, and the financial companies Gazprombank ( which is the financial arm of the gas giant Gazprom – note NOT Gazprom itself) – and VEB (Vnesheconombank), the Russian state development bank. The confusion arises from the statement I have highlighted in the quotation above. Rather than prohibiting these companies from using US dollars, which has been the approach taken in other sanctions regimes such as those applied to Iran and Sudan, the US administration has banned “US persons” from providing them with long-term financing.
This means that contrary to reports, “US persons” may not lend ANY currency to these companies for more than 90 days. The sanction is not limited to US dollars.
This appears to have much broader implications than just actions by US financial institutions. The US economy is the world's largest and the power of its financial institutions is by no means inconsequential. However, the global financial system is a bit like the internet in being US centric. The power if the US dollar as world reserve currency is magnified.
But it is also – perhaps deliberately – vague. What exactly does a “US person” mean? We could take it to mean an individual or company normally resident in the US. Or we could take it to mean an individual who is a US citizen, regardless of their domicile. And what about companies that are headquartered elsewhere but have operations in the US? Are they “US persons” for the purposes of this executive order? There will no doubt be extensive legal arguments about the interpretation of this order.
The major financial institutions of EU nations have extensive interlocking dealings and branches in the US.
Der Spiegel is raising numerous concerns about the potential impact of the US measures on the German economy.
The most recent US sanctions, warns Eckhard Cordes, head of the Committee on Eastern European Economic Relations, have placed an additional strain "on the general investment climate." Particularly, he adds, because European companies have to conform to the American penalties.
EU foreign ministers are meeting tomorrow and a major item on the agenda will be the adoption of similar economic sector sanctions by EU nations. Supposedly Cammeron, Hollande and Merkel have agreed to support a shift to a more aggressive posture toward Russia. Merkel is of course the key player in this as the leader of the most substantial economy in Europe. Whatever actions the EU does decide to take, it does appear that the Obama administration is finding ways to herd them in the direction it wants them to go.