Europe Gets Tougher With Russia

Economy

Published: September 8, 2014 7:40 am

Last Updated: April 27, 2020 8:56 pm

Source: Thinkstock

The European Union is expected to adopt stricter sanctions against Russia on Tuesday in an effort to get Russia to withdraw troops from Ukraine. The sanctions include restrictions on financing for Russia’s three big oil companies and tighter restrictions on access to Europe’s capital markets by already-sanctioned banks.

Sanctions against the oil companies — Gazpromneft, Transneft and Rosneft — forbid European banks from lending the companies on maturities of more than 30 days. The five state-controlled banks, which have been allowed to raise funds on maturities up to 90 days, will also see their maximum maturities cut to 30 days.

The Wall Street Journal reports that three Russian companies that produce military gear — Oboronprom, United Aircraft and Uralvagonzavod — will be barred from raising any EU funds. EU manufacturers of some technologies that have both civilian and military uses will be prohibited from making sales to nine Russian companies that do business with the country’s military.

Conspicuously absent from the sanctions list is Russia’s OAO Gazprom, the supplier of around 24% of Europe’s natural gas. Chances that EU leaders will lay any sanctions on Gazprom are virtually zero.

Natural gas remains the primary economic weapon that Russia can wield against the Europeans. But without a European market for its natural gas, Russia’s economy would suffer even more than it does now. Russia has only just begun to ship natural gas to China and while that promises to be a huge market for Russian gas, it won’t replace Europe very soon.

Unfortunately for Europe, it has no quick alternative to a supply of Russian gas. Production on the continent can’t be raised quickly and liquefied natural gas (LNG) receiving terminals are scarce.

Of more concern to Russia than these sanctions may be the drop in Brent crude prices below $100 a barrel Monday morning. Even more than natural gas, Russia needs high prices for oil to support its economy.

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