Rusal and Other Russian Companies on Hook Over Crimea Crisis?

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All in all, Europe is too deeply engaged economically in Russia, and Russia in Europe, for either side to let this get out of hand. (We delved into the numbers of the economic relationship between Russia and the EU in Part One here.)

Sanctions against individuals are one thing, and for sure, vested interests in the US and Europe are leading the arguments for sanctions against specific industries, but consumers generally are hoping the pressure will be focused on the political elite rather than the free movement of goods.

They should take some heart from President Obama’s statement that “Washington was considering sanctions against key economic sectors in Russia….if Russia made military moves into eastern and southern Ukraine,” saying in essence, we know we have lost the case on Crimea but thus far and no further.

That’s a stand with more credibility and one Vladimir Putin will find harder to argue against with his case for military action. Western Ukraine is not the majority Russian-speaking population that Crimea is; the grey area is eastern Ukraine outside of Crimea, which is more pro-Russian, has many native Russian speakers and where it would be easy to stir up reaction against Kiev and its more pro-Western integration.

Here Moscow is probably itching to act, and while it could do so with impunity from a military point of view, the fallout economically would be much more serious. Even Europe would be forced to act – let’s hope it doesn’t come to that.

Back to the Effect on Commodities

For Russia, Ukraine is a highly emotive issue and when emotions run high, irrational decisions are sometimes taken.

The consequences could be serious for Western firms, but they could potentially be terminal for some Russian companies, many of which in the commodities sector are deeply indebted following rampant acquisition activity prior to the financial crash, such as Rusal. A sharp drop in the ruble and being denied access to ready supplies of funding to roll over debts would put many in trouble.

Let’s hope Mr. Putin’s industrialists are urging caution behind the scenes, even as they cancel their personal travel plans following the targeted sanctions imposed so far.

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