La SACE, in a very interesting Focus published today, provides his assessment on theimpact that they will be able to have US and EU sanctions on relations with Russia and their respective economic areas.
Russia's interference in the conflict in Ukraine it was the main reason for the intervention of the USA and the EU in relations between the two countries through the adoption of sanctions starting last March. Russian support for Ukrainian separatist movements and the annexation of Crimea to Russia were the elements that prompted the international community to take a stand against Russian interference in Ukrainian politics. Between March and July the sanctions adopted by the United States and Europe were progressively tightened.
The new sanctions primarily target the banking, oil and military sectors. The United States has sanctioned individual banks, companies and individuals and formally prohibited US persons from doing business and financial relations with these counterparties. The European Union has launched individual sanctions against politicians, banned access to the capital market in Europe to some Russian banks ((Sberbank, VTB, Gazprombank, VEB, Russian Agricultural Bank), and prohibited the import/export of goods and the export of technology destined for the Russian oil sector.Europe has also approved the suspension of new financing programs aimed at Russia by the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD).
The countries of the European Union, in light of close trade ties with Russia, will register negative effects related to sanctions. In fact, Russia is a strategic market for Europe both from an energy point of view (Moscow supplies about 32% of European energy needs) and from a commercial point of view (Russia absorbs over 7% of European exports). At European level i most exposed countries at the risk of a drop in trade are Germany and Italy, Russia's main trading partners.
The current situation could evolve into two potential scenarios. A stabilization of the Ukrainian crisis could lead to a progressive easing of the sanctions framework and contain its impact on the Russian economy. On the contrary, an escalation of the violence or a possible military intervention by Russia in Ukraine could lead to a further tightening of the sanctioning framework, with a more marked impact both on the Russian economy and on Italian exporting companies.
THEnegative impact on the Russian economy would be determined by 4 factors:
1. The banking sector of Russia will experience a increase of cost of funding with a negative impact on the ability of banks to grant loans to the corporate sector and, consequently, a possible contraction of private investment activity.
2. The deterioration of market sentiment to the country could discourage capital inflows from Europe (largest investor in Russia) e accelerate the outflow of funds already underway in the country (Some $51 billion out of Russia in the first quarter of the year, which could rise to $100 billion according to the IMF). In particular, the outflow of capital could help accelerate the devaluation of the ruble.
3. The reduction of trade with Europe could have a impact on Russian exporting companies, which allocate about 50% of their sales abroad to European markets, mainly energy goods. The sanctions provide for a block on Russian exports to Europe limited to the military sector, however the measures adopted could indirectly favor the reduction of trade in other sectors.
4. The energy sector was only partially affected by the sanctions that limit European exports of technology to the Russian oil sector. However, the stiffening of relations between Russia and Europe could lead to a delay in large energy projects expected between the two areas and on the one hand push Russia in the short term to review the energy supply agreements with Europe and on the other push Brussels to diversify its energy supplies in the long run.
According to SACE estimates Italian exports will be negatively affected by the new sanctions against Russia with a possible reduction of Made in Italy exports to Russia in the two-year period 2014-2015 between 0,9 and 2,4 billion euros depending on the evolution of the scenario. most exposed sector to the impact of the sanctions is the instrumental mechanics which could record a loss of exports between 0,5 and 1,0 billion euros in the two-year period 2014-2015.
