New US sanctions: not as bad as was feared

RUSSIA ENERGY / FINANCE - In Brief 05 Aug 2019 by Marcel Salikhov
OFAC issued clarifications on sanctions against the Russian Federation, which were announced last week. In our opinion, the explanations indicate that the direct effect of the imposed sanctions will be negligible.First, the ban applies only to sovereign debt and does not include the debt of state-owned companies. The external debt of the Russian public sector is relatively small and amounts to about $ 42 billion. It has not changed over the past two years since OFZs are the main form of borrowing for the Ministry of Finance.Secondly, the ban applies only to American banks and American institutions. OFAC will not target foreign financial institutions.Third, OFAC does not impose any bans on operations in the secondary market. Thus, the American participants have no obligation to fire sell Russian sovereign Eurobonds. Price adjustment in this segment, most likely, will continue in coming weeks due to additional risk and possible liquidity constraints. But the overall impact on the Russian market will be limited. At the end of last week, the domestic market reacted quite emotionally to the news of the new sanctions. But today's correction indicates that common sense has already prevailed over emotions. The announced measures reduce the likelihood of imposing sanctions against OFZs, at least in 2019. At the same time, of course, the very presence and introduction of new sanctions mean additional long-term risks for investors in Russian assets.

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