In June, the EU sanctions on Crimea and Sevastopol were extended until 23 June 2018 and sanctions on Russia were extended for a further 6 months. The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) updated the Specially Designated Nationals List and the Sectoral Sanctions Identifications List to target the evasion of sanctions and other activities related to the conflict in Ukraine. More details can be found online. Moreover, the US Senate approved by a large majority a bill that still has to be approved by the US House of Representatives and signed by the President. If approved, the bill could strengthen existing US sanctions and could target companies that support Russian energy export pipelines such as the Nord Stream 2 gas pipeline project in which some European companies are participating. The bill also codified sanctions in law and hence makes it harder for the President to ease sanctions on Russia.

Impact on country risk

If the bill is approved, the US President will no longer have the ability to ease sanctions on Russia with his signature. The recent move shows that the USA is unlikely to adopt a friendlier attitude towards Russia in the short term. Hence, no end to the EU and US sanctions is expected in the next six months. In this context, Credendo’s ST and MLT political risk classifications remain stable. The commercial risk (still in category C on a scale from A to C) has improved as the rouble strongly appreciated in 2016. Moreover, economic growth is expected to reach 1.4% this year following two consecutive years of contraction. More recently, oil prices have been on a downward trend (see graph), which has resulted in a depreciation of the rouble. Given the high reliance on oil as a source of current-account receipts and public revenue, persisting lower oil prices could have a negative impact on fiscal balance (the 2017 budget was based on a conservative oil price assumption of USD 40 pb), external balance – with a lower current-account surplus – and economic growth. Domestic tensions are on the rise as highlighted by recent protests. That said, President Putin – who has not yet declared his candidacy – is still likely to easily win the next presidential election scheduled for March 2018.

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