New sanctions: how serious it can be?
On February 13, 2019 five US senators from both parties introduced a bill (S.482) of new sanctions on Russia. It is an updated version of the DASKA bill of last year with some new measures proposed.
Given current political agenda in the US it is highly likely that some version of the bill will be accepted in 2019. We think that core initiatives of the bill like ban for the US people to buy new issues of the OFZs and targeted sanctions on banks and energy projects will stay in place during approval. The good news is that Russian banks not will be shut off from USD payments and sanctions on secondary OFZs are not considered. We think that in case of sanctions Minfin will change its plans for OFZ issuance. As the budget is in surplus it will not be difficult to implement.
If accepted the will obviously be negative for the Russian economy but the size of the effect for the economy will be not large (0.2-0.3% of GDP in 2019 by our estimates). Russian economy has become more resilient to sanctions shock in the last year. There is also enough fiscal space for the Government to support sanctioned companies and projects.
At the same time new sanctions will be negative for RUB and we expect ‘sanctions premium’ to increase from 5-7 RUB to 7-9 RUB per USD. As RUB/USD will become closer to 70 we expect that CBR will be ready to tighten in order to support the currency.We do not think that increase in ‘sanctions premium’ will not be as large as in 2018 because to a large extend new sanctions were already priced in last year and are reflected in current FX rate. Marginally, DASKA 2.0 is not much worse than DASKA 1.0.
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