On 1 July, the EU Council decided to renew its sanctions against Russia for six months in order to enable it to further assess the implementation of the Minsk agreement. After all, with the exception of the ceasefire, which is frequently violated, no other measure of the Minsk II agreement concluded in February 2015 has been implemented. Kiev has not yet granted a special status to the Donetsk and Luhansk regions while the transfer of border control between Ukrainian rebels alleged to be backed by Russia and Kiev has not yet taken place.

Impact on country risk

Despite the extension of the European sanctions for an additional six months, the situation is completely different from the one in 2014. Indeed, the mood in Europe is shifting to a gradual softening of sanctions and rapprochement with Russia. It is highlighted by the rising division among Europeans to extend sanctions as well as by the presence of Italian Prime Minister Renzi and European Commission President Juncker in a major investor conference in St. Petersburg in June. Despite some improvement, tensions between Russia and the West remain elevated. Frictions – notably in the Baltic Sea and around the NATO military exercises held in June – have increased since 2014. However, an intensification of the geopolitical tensions seems less likely for the moment than in 2014 even if it cannot be ruled out. In this context, the western sanctions are unlikely to be strengthened in the short term. Hence, Credendo Group upgraded its short-term risk to category 3 in June. From a pure macroeconomic point of view, there is no reason to maintain the short-term political risk in category 4. Indeed, the short-term debt is limited, foreign exchange reserves are no longer on the decline and cover nearly one year of imports and the current account balance remains in surplus despite low oil prices.

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