After Trump became U.S. president, some investors said they would be prepared to contemplate new deals with Russian firms if they saw signs that U.S.-Russian ties were improving and U.S. restrictions on business with Russia were being relaxed.
“Russia faces the codification of sanctions which suggests they will be hellishly difficult to take off and are likely to remain in place for the very long term,” said Tim Ash, a strategist at BlueBay asset management in London.
“The mere fact that the U.S. and Western governments … saw fit to levy sanctions on Russia sends at the least an amber light to Western business –- be careful in your dealings with Russia.”
Executives in Russian banks and energy companies, the main targets of the U.S. sanctions, told Reuters their compliance departments were still going through the fine print of the new law to understand the practical impact.
Already clear, though, was the message about the duration of the sanctions.
The sanctions in place since 2014 directly restrict a narrow range of business dealings. Their biggest effect, according to investment bankers and corporate lawyers in Moscow, is that they create the risk of more sanctions being added.
On the other hand, if investors believe the sanctions will not be expanded, they can conclude deals with some confidence, even while existing measures remain in place.
SHIP HASN’T SAILED
It was at this time that a long-planned deal to privatize a stake in Sovcomflot, a state-owned shipping company with a fleet of modern vessels and lucrative energy sector contracts, was put back on the government’s agenda.
The fate of the partial privatization since then reflects the importance of the new sanctions to investor sentiment.
The plan later changed again because of deteriorating market conditions, a source familiar with the situation said in June — the same week that the Russian stock index slipped on concerns that Washington would impose new sanctions on Moscow.
Later in June, a senior Russian government official told Reuters the deal might happen in July. But after the new U.S. sanctions, Moscow’s tone on the deal became more cautious though officials declined to say whether the new sanctions would alter the government’s decision about when the sale happens.
“It’s clear that the USA’s toughening of the sanctions regime right now will hardly make the investment climate for this asset more attractive on international financial markets,” Transport Minister Maxim Sokolov told reporters on Aug. 3.
Anton Tabakh, a Russian economist, said the main problem the new sanctions posed for Russian investment was that they increase uncertainty about what happens next.
The new measures “guarantee that the risk of the sanctions expanding will remain for a long time,” he wrote in a commentary for Carnegie Moscow Center, a think tank.
The new sanctions are unlikely to trigger an immediate crisis in Russia. Business and government have adapted to living with low investment flows, and the central bank has the tools to maintain macro-economic stability.
Longer-term, tepid foreign investment is likely to shave a few percentage points off economic growth, economists say. The Russian economy contracted in 2015 and 2016, and is seen growing up to 1.8 percent this year, according to Russia’s central bank.
Additional reporting by Polina Nikolskaya; Andrey Ostroukh, Oksana Kobzeva, Olesya Astakhova, Gleb Grodoyankin, Denis Pinchuk and Katya Golubkova; Writing by Christian Lowe, Editing by Timothy Heritage