What European Union sanctions mean for business in Russia

BUSINESS

What EU sanctions mean for business in Russia

Juergen Baetz The Associated Press
Published Wednesday, July 30, 2014 1:51PM EDT

Russian President Vladimir Putin, background center, heads the Cabinet meeting in the Novo-Ogaryovo residence, outside Moscow, Russia, Wednesday, July 30, 2014. (AP Photo/RIA Novosti, Alexei Nikolsky, Presidential Press Service)

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BRUSSELS, Belgium -- The European Union's sanctions against Russia are bound to inflict pain on the country's ailing economy. While still narrowly targeted, they come as a warning shot to convince Moscow to change its Ukraine policies or face even tougher penalties.

The 28-nation EU, which is Russia's biggest trading partner, is limiting access to its financial markets, imposing an arms embargo and curbing trade in goods that can be used militarily as well as technology used in oil exploration.

EU officials say the penalties can be eased if Moscow co-operates in Ukraine. But they also left no doubt that they can be beefed-up if necessary. The officials briefed reporters in Brussels on condition of anonymity prior to the sanctions' formal announcement Thursday.

Here's a look at the sanctions and their potential impact.

FINANCIAL SANCTIONS:

The sanctions prohibit the sale of bonds and shares on EU market by banks that are controlled by the Russian government. No EU firms will be allowed to help those banks in placing debt on international financial markets, and EU investors will also be barred from buying such bonds or shares on all markets.

The state-owned banks last year issued 7.5 billion euros ($10 billion) in debt with a maturity of over 90 days on Europe's market, according to EU officials. They issued another $21 billion on the Russian market, of which a share was certainly bought by U.S. or EU investors, which is now impossible. The measures, which echo similar steps taken by the U.S., will hit Russia's economy as access to finance for its companies becomes more difficult, EU officials said.

In the U.S., officials estimate roughly 30 per cent of Russia's banking sector assets are now constrained by sanctions. For the EU economy, the punitive measures will have a negligible effect, but they will hurt Russia, from which investors are already pulling out money. Analysts are revising down growth forecasts for Russia, with many now expecting it to be pushed into recession.

ARMS EMBARGO:

Exports and imports of weaponry and other military goods to and from Russia will be banned.

Once again, Russian will be hit harder than Europe. Russian exports of arms and military equipment to the EU is worth some 3.2 billion euros annually, while Europe's exports to Russia are worth only about 300 million euros, according to EU figures.

The embargo will only apply to new contracts, allowing France to go forward with the delivery of two warships to Russia that are part of a $1.6 billion arms deal that has been sharply criticized by the U.S. and Britain. In addition, there is an exception for the maintenance, service and sale of spare parts of Russian-built military equipment like helicopters or rifles currently in use in the EU. Officials in Brussels did not say what value those exceptions represent.

OIL TECHNOLOGY SANCTIONS:

The EU sanctions prohibit the exports of certain oil exploration equipment to hamper the long-term development of Russia's oil industry.

The sanctions target equipment or services used for deep sea drilling, Arctic drilling and shale oil exploitation. EU exports of those technologies to Russia total 150 million euros, or about one tenth of the overall sales of energy technology goods to Russia, according to EU officials.

Exports to Russia of goods that could be used for such oil projects will require prior approval by the EU member states' national export control authorities.

The sanctions target the energy sector's long-term projects in which it heavily depends on technology produced in the EU. In those areas, Russia typically gets between 40 and 60 per cent of its technology from the EU, with some projects totally dependent, EU officials said.

The EU made a point of not hitting Russia's gas sector for fear of retaliation by Moscow because several of the bloc's 28 member states are heavily dependent on Russian gas.

DUAL USE GOODS:

The EU is also forbidding the export to the Russian military of so-called dual use goods -- those that can be used for military or civilian purposes.

Such goods can include, for example, chemicals that could also be used in the production or use of chemical, biological or nuclear weapons.

The EU's total export to Russia of dual use goods last year totalled about 20 billion euros, but EU officials cautioned only "a fraction of that" will be affected by the sanctions since the bulk of exports is for civilian purposes.

EU officials were confident Russia would have a hard time skirting the export ban -- national authorities and manufacturers have long had to enforce with such sanctions because they already exist on countries including Iran and Syria.

ASSET FREEZES AND TRAVEL BANS:

The EU has already imposed asset freezes and travel bans on almost 100 Russian officials or pro-Russian Ukrainians held responsible for the annexation of the Crimean Peninsula or the destabilization of eastern Ukraine. In addition, 23 companies and institutions were also sanctioned. The bloc was expected to release the names of more sanctioned individuals later Wednesday, including four considered close to Russian President Vladimir Putin.

The EU on Wednesday also broadened its sanctions to limit trade and investment in Crimea, banning new investment in the transport, telecommunications and, crucially, the energy sector "and the exploitation of oil, gas and minerals." Exports of key equipment for those sectors to Crimea are also banned.