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The prospect of new Western sanctions helped devalue the ruble back to a four-year low reached during the fall in oil prices in March. Only Turkish government bonds have fared worse in emerging markets than Russia in the past three months.
Victor Szabo, a long-term Russian bond investor at Aberdeen Asset Management, says the upcoming US elections are the biggest source of uncertainty for the market. However, he points out that the risk is much lower than before, and there is little left to sanction without creating a broader conflict.
“It would be bad if they banned access to Russia’s domestic debt, but I don’t think it’s likely,” London-based Szabo said. “Even if that happens, Russia has a lot of reserves, they are well prepared.”
The following is a list of sanctions that Russia may or may not face in the coming months and their impact on the markets.
Interference in elections
Sanctions will be largely determined by the US elections, and this is a major deterrent for investors. Russian officials deny interfering in both these and the 2016 elections.
– Department of the Treasury on September 23. has imposed new sanctions on Russians for cyber-interference in the campaign, but significantly more severe sanctions could be expected in the future, which could affect markets.
– In recent years, two bills drafted by both parties to sanction Russia’s public and commercial debts for electoral interference have circulated, but the bills have not become law.
“Russia is waging a ‘very active’ campaign to set foot on Democratic candidate Joe Biden and sow discord in the US political arena,” said FBI Director Christopher Wray. Biden has said that he would force Moscow to pay to intervene in the elections, calling Russia an “opponent.”
© Sputnik / Scanpix
Poisoning by Navalno
Lawmakers in the United States and the European Union are considering responding to German doctors’ findings that Russian opposition activist Alexei Navaln was poisoned last month with a prohibited nerve-paralyzing substance, Novichok. The Kremlin has refused to open an investigation into Navaln’s disease.
– A group of senators representing both parties earlier this month proposed a bill requiring the blocking of the assets of Russian officials “for their involvement in arrogant violations of international law,” including the recent poisoning.
– German Chancellor Angela Merkel did not support this possibility. Merkel, who visited Navalna in hospital last week, is demanding that the Kremlin begin an investigation into the attack and consider a joint response with European and NATO allies. In the process, it distanced itself from supporting the Nord Stream 2 pipeline, which would supply more Russian gas to Germany.
– The White House took about a year and a half to respond to a similar chemical weapons attack on a former Russian spy in the UK in 2018 in March.
– The sanctions adopted a year ago prohibited US banks from buying new sovereign Eurobond issues outside of rubles, but left intact a much larger market for sovereign ruble securities, called OFZ.
– At that time, some analysts pointed out that it would be enough for the US Treasury Department to change the definition of “public debt” in the Directive to include OFZ sanctions.
Belarus
Another area of tension is Belarus, where the Kremlin supports President Aliaksandr Lukashenko, despite massive public opposition to his 26-year rule. The opposition, supported by many Western governments, refuses to recognize Lukashenko’s legitimacy after the disputed August 9. elections.
– So far, Russian President Vladimir Putin has offered Lukashenko security guarantees and a $ 1.5 billion loan, avoiding direct interference that could lead to sanctions.
– The EU’s efforts to impose sanctions on dozens of Belarusian officials stalled earlier this month when Cyprus refused to affix its signature unless other member states extended the sanctions list to Turkey.
– American politicians are increasingly concerned about their own presidential elections, so events in Belarus are unlikely to be the center of attention in the near future.
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