BREAKING NEWS - Malaysian airliner crashes on Russian-Ukrainian border

[Eddie Teach]

Will we have a war over this I wonder? A limited nuclear exchange perhaps?  With some medium scale ground movements?



G.

Just when you think he couldn't possibly be a more wizened shrew.

I think he's had much more egregious displays of sardonicism in the past. This one almost works as a joke.

[garbon]

Will we have a war over this I wonder? A limited nuclear exchange perhaps?  With some medium scale ground movements?



G.

Just when you think he couldn't possibly be a more wizened shrew.

I think he's had much more egregious displays of sardonicism in the past. This one almost works as a joke.

I was young then and I don't recall.

[Baron von Schtinkenbutt]

I have a sneaking suspicion those sanctions are more gestural than substantive.  Why only state-owned banks?  Obviously that leaves untouched the oligarch wealth piled up in London and generating revenue.  BP operates in Russia (I assume other western companies do as well).  If they transport equipment will it be deemed an "export?"

Gazprom, Lukoil, and the other Russian companies have been squeezing BP out.  BP, to my knowledge, has no independent operations left in Russia; everything is a joint venture with a Russian company where the Russians are in the driver's seat.  Pooty forced BP out of their original operations years ago.  In fact, the Russians have been known to summarily revoke the visas of BP execs they don't like.

[alfred russel]

  Pooty forced BP out of their original operations years ago.  In fact, the Russians have been known to summarily revoke the visas of BP execs they don't like.

Huh. It seems that even the russian government is capable of doing the right thing once in a while. 

[DGuller]

Yeah, I think these sanctions will save US companies from themselves, if anything.  I have no idea why corporations with a lot of valuable know-how decide that going to Russia is a good idea.  They have to know by now that political risks are untenable.

[Baron von Schtinkenbutt]

Yeah, I think these sanctions will save US companies from themselves, if anything.  I have no idea why corporations with a lot of valuable know-how decide that going to Russia is a good idea.  They have to know by now that political risks are untenable.

ExxonMobil just signed a big JV in Russia...

[Syt]

I'm just so glad I'm not at my old job anymore. We did a significant amount of payments to Ukraine and Russia, and getting payments through was a nightmare on the best of days (Russian banks can be very peculiar in their requirements, including sometimes requiring routing through a state bank to a private bank). Though I wouldn't be surprised if a number of studies weren't just put on hold for the time being.

And the American mothership was already paranoid when we were dealing with sites in Jordan or Egypt ...

[Caliga]

I'm just so glad I'm not at my old job anymore. We did a significant amount of payments to Ukraine and Russia, and getting payments through was a nightmare on the best of days (Russian banks can be very peculiar in their requirements, including sometimes requiring routing through a state bank to a private bank). Though I wouldn't be surprised if a number of studies weren't just put on hold for the time being.

Sounds like Princesca's war stories dealing with Chinese customs.

"You filled out this form wrong.  Fill it out again and pay $2,000 fine."
*a week later*
"You filled it out right, but forgot to get this authorization we've never told you about before.  $5,000 fine!"

[derspiess]

That makes me not want to go to China.

[The Minsky Moment]

Yeah, I think these sanctions will save US companies from themselves, if anything.  I have no idea why corporations with a lot of valuable know-how decide that going to Russia is a good idea.  They have to know by now that political risks are untenable.

If we are talking oil majors, pick your geopolitical poison: Nigeria, Venezuela, Libya, Iraq, equatorial Africa, etc.  By those standards, the risks with Putin's Russia don't seem so unreasonable.

BP has taken its hits in Russia and may take more.  But one could argue that it took its worst political risk by operating into the US Gulf Coast and exposing itself to the US plaintiff's bar.

[Admiral Yi]

[mongers]

Yeah, I think these sanctions will save US companies from themselves, if anything.  I have no idea why corporations with a lot of valuable know-how decide that going to Russia is a good idea.  They have to know by now that political risks are untenable.

If we are talking oil majors, pick your geopolitical poison: Nigeria, Venezuela, Libya, Iraq, equatorial Africa, etc.  By those standards, the risks with Putin's Russia don't seem so unreasonable.

BP has taken its hits in Russia and may take more.  But one could argue that it took its worst political risk by operating into the US Gulf Coast and exposing itself to the US plaintiff's bar.

Damn I was just going to make a similar post, thought not so eloquently put; at least I saved being ridiculed.

[Sheilbh]

I have a sneaking suspicion those sanctions are more gestural than substantive.  Why only state-owned banks?  Obviously that leaves untouched the oligarch wealth piled up in London and generating revenue.  BP operates in Russia (I assume other western companies do as well).  If they transport equipment will it be deemed an "export?"

Several major Russian banks have been added to the 'blacklist'. But they're private companies, so like private individuals they have to be specifically targeted. But also there are lots of state-owned banks: two of the biggest four are listed on the LSE, for example.

The EU's view is that this'll hit Russian GDP by about 1.5% this year. The sanctions also had a bit that clearly leaves room to ratchet them up.

I think the real risk (to EU economies and Russia) is if the situation spins out of control, or if they impose retaliatory sanctions.

Edit: A snip from the FT:

The impact of the lesser type of sanction works through sentiment. The actual measures in this category have targeted individuals and economically insignificant businesses owned by those individuals. Such measures have created an atmosphere in which Russian companies have found it increasingly difficult and expensive to refinance their foreign debt (totalling $650bn at the end of 2013) and the collapse of Russian issuance in the capital market. This has intensified capital outflow, rouble weakness (resuming now, after a bounce in May-June) and declining domestic investment. Real gross domestic product growth fell below 1 per cent in the first half of 2014 compared to the same period last year and 1.3 per cent last year as a whole.

Pro-Moscow separatists in eastern Ukraine have escalated the political turmoil that threatens to tear the country apart
The US already moved up to the second broad category of sanctions on July 16 (the day before the downing of Malaysia Airlines Flight MH17). This type of sanctions is designed to squeeze the financial lifeblood out of the Russian economy by banning credit and capital flows to major Russian banks and corporations, starting with Rosneft, Novatek, Vnesheconombank and Gazprombank. The EU is set to follow the US across this Rubicon – with the focus, judging by the European Commission's consultation paper, on cutting off Sberbank, VTB and other state-controlled banks from external funding markets.

Whatever sanctions the EU governments finally agree to impose now and in the future, the US's control of the dollar funding markets gives it the financial power to tip the Russian economy into recession single-handedly. Since the European economy would suffer much more from a slump in Russia than the US, the main significance of the MH17 tragedy in this context is that European governments no longer object to the US using that power, so there will be no transatlantic splits for Russia to exploit. As it turns out, the EU is proving ready not only to endure the effects of serious sanctions passively but to follow the US across the sanctions Rubicon. This will tighten more quickly the financial garrotte around the neck of the Russian economy.

Placing Russia under a financial interdict will have a more powerful longer-term impact than other so-called sectoral sanctions, such as the European Commission's recommended ban on defence equipment and advanced drilling technologies for tight oil and offshore hydrocarbons in the Arctic. The natural Russian response will be to step up import substitution efforts. While this always takes time even in normal conditions, in the absence of easily accessible financing, the challenge will be that much tougher – and perhaps insurmountable in some cases.

It follows that Russia will have to fall back on its domestic savings. The country's strong national balance sheet includes about $160bn in the government's reserve funds that could be used to recapitalise and fund the state banks, which could then refinance the existing foreign debt of non-financial corporations. But with almost $100bn of principal external debt repayments falling due between now and the end of 2015, the sanctions regime will result in these reserves being rapidly depleted – leading in turn to further devaluation, credit rating downgrades and negative growth rates.

Incidentally I've just finished an application for a law firm that's a specialist in helping people and companies who may have issues with sanctions getting around them/out of trouble

[Admiral Yi]

Can someone (by someone I mean Joan) explain to me how the US has legal control over dollar transactions between two other parties?

[The Minsky Moment]

Because practically engaging in significant dollar transactions either requires dealing with a US bank or branch or dealing with an overseas bank that itself has a correspondent account with a US bank.

One interesting illustration is that under the US code, if an overseas person has forfeitable funds (e.g. proceeds of certain activities illegal in the US) in an overseas bank that has no US branch, the Feds can go and seize an equivalent amount of money from the general correspondent account of the overseas bank.  There is another provision of the Code that also allows the Feds to seize money without prior notice and hold it for a period of time before having to prove a legal right to it.

This sort of stuff is super popular overseas . . .