Grant Eldred key speaker on Sanctions at the 2014 IFA Conference in Barcelona

Latest US/EU sanctions puts Russian energy exploration and lending in deep freeze

Published with the kind permission of Clarissa Dann, Editor of Trade & Forfaiting Review

Further to the EU sectorial sanctions imposed on Russia on 29 July, the US and the EU have tightened the screws on Russia’s largest banks, oil producers and defence companies in a further round of measures announced on 12 September 2014.

Placing additional limits on access to US and European capital markets, the new sanctions make it very difficult for Russian banks to obtain any credit beyond short-term loans. Named for the first time by the US Treasury, Russia’s largest bank, Sberbank is a no-go institution for US individuals and companies dealing in any debt issued with a maturity of more than 30 days. The five other Russian banks restricted to 90-day or shorter loans under the previous round of sanctions are also now subject to the 30-day limit.

The US sanctions also ban foreign corporates from supporting Russian exploration and production of oil from deep water, Arctic offshore and shale projects by banning Western corporates from trading with or supplying hydrocarbons producersGazprom, Gazprom Neft, LUKoil, Surgutneftegaz and Rosneft. The EU sanctions only targets Rosneft, Transneft and Gazprom Neft, the oil unit of gas giant Gazprom (Europe gets 30% of its gas from Russia so Gazprom was excluded from the EU list).

This means that oil majors such as Exxon and Shell are, as one observer put it, “frozen in their operations” with the five banned Russian producers.

Although a US official did say the sanctions could be “rolled back” if Moscow withdrew its forces from Ukraine and established a buffer zone along the border (among other conditions), it does not happen overnight and the economic cost is mounting.

Speaking at the ITFA annual conference on 12 September 2014 in Barcelona as news of the sanctions was breaking, Grant Eldred , a partner at trade finance law firm specialists Thomas Cooper told delegates: “It is difficult to undo sanctions, I am not sure longer term how that will shift. And if things deteriorate there are still areas the EU and US can look at.”

He said additional measures could include applying the new capital restrictions to all new Russian government bonds, locking Russia out of SWIFT, and boycotting the 2018 World Cup. But, he added, “the estimated cost of EU sanctions to the European economy is touching €40bn already and they are not a precise weapon.”

This article is filed under:  Events, Industry news

About the contributor

  • Grant Eldred Partner

    Grant is a partner and the head of our Finance Group. He specialises in banking law including bilateral and syndicated secured and unsecured lending, trade finance and banking regulation and compliance.

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