At the end of December, the EU Council decided to renew its sanctions on Russia for 6 months in order to enable it to further assess the implementation of the Minsk agreement. The US Treasury Department's Office of Foreign Assets Control (OFAC) added additional Russian and Ukrainian individuals and entities to its Specially Designated Nationals (SDN) List and identified on its Sectoral Sanctions Identifications (SSI) List subsidiaries owned for 50% or more by VTB Bank, Sberbank and Rostec. In the meantime, Russia designated the NATO as a threat to its security. Moreover, as the trade agreement between the EU and Ukraine came into force on 1 January 2016, Russia decided to suspend its free trade agreement with Ukraine. On its side, Ukraine failed to repay a Eurobond of USD 3 billion that was included in its debt restructuring despite Russian protest. Last but not least, Russia adopted sanctions against Turkey, affecting tourism, construction firms and food exports, in response to the downing of a Russian aircraft (in the context of the conflict in Syria).

Impact on country risk

The western sanctions on Russia constrain Russia’s access to financial markets and block the export of dual-use and sensitive technology. The recent US sanctions are unlikely to further hit the Russian economy which is already under severe pressure. The conflict in Ukraine has led to a sharp deterioration of the relationship between Russia and the West. Now, the situation in the Donbas has stabilised but remains very tense. As long as the Minsk agreement is not fully implemented an escalation of the conflict and hence a strengthening of the Western sanctions cannot be ruled out even if the more likely scenario is a frozen conflict. Even without adoption of additional severe sanctions, the outlook for 2016 is meagre. Indeed, energy prices – on which Russian current account receipts and public revenues heavily rely – are low, the ruble is weak, credit subdued and GDP likely to continue to decrease in 2016. In this context, Credendo Group‘s country ratings are likely to remain stable.

Analyst: Pascaline della Faille, p.dellafaille@credendogroup.com