More US sanctions on Russia

The US continues to impose new sanctions on Russia to threaten additional ones. A bill introduced last week by US Senator Linsey Graham includes a ban on new Russian sovereign debt purchases by US individuals and banks and on Russian state banks. This week, the US has imposed a new set of sanctions against Russia in relations to the Skripal poisoning in Saulsbury, UK. The latter will consist of two rounds. The first one expected to come into effect on August 22, 2018. It is intended to prevent Russia from obtaining a wide range of technologies from the US that have national security implications by prohibiting the relevant import licenses.

The second round will follow if Russia does not provide evidence that it no longer uses chemicals or biological weapons and does not admit a UN chemical inspection within a three-month period. Russia is unlikely to meet such demands; it has emphatically denied its affiliation with the Skripal poisoning. These may potentially freeze diplomatic relations between the two countries, halt Aeroflot flights to the US, and block bilateral trade.

The rouble had begun to weaken last week, on the news about potential Russia sovereign debt purchase restrictions. This week, the “chemical” sanctions accelerated the sell-off, to below 65 roubles per USD yesterday (August 8, 2018) and below 66 today (August 9, 2018). In addition, the new round of sanctions has triggered the sell-off in some of Russian equities. The effect of sanctions is amplified by the weak trading of emerging market assets, estimated USD1.9bn of foreign debt due this month, and by record FX purchases by the Ministry of Finance.

Based on the previous round of sanctions introduced in April, when the rouble depreciated from around 58 to 63 per USD, the exchange rate will likely stabilise in the 65-67 per USD range in the near term.

The recent volatility spike is likely to unnerve foreign investors and may trigger a decline in real estate investment market activity, echoing the effect of April sanctions.

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