What the New Round of Russia Sanctions Means

And how Putin could retaliate

By Matt Cantor,  Newser Staff

Posted Jul 30, 2014 7:51 AM CDT | Updated Jul 30, 2014 7:56 AM CDT

(Newser) – Amid tensions between Vladimir Putin and the West, Russians have shown little serious concern about the direction their country is headed. But with the downing of the Malaysia Airlines plane and increasing sanctions from the US and EU, the mood appears to be shifting, the New York Times reports. Russian officials "were not anticipating the West to make radical moves, costly moves," says a political analyst. "What is happening is different from what they wanted and what they expected."

One key sanction, imposed by the US and Europe together, seeks to hit Russia where it really hurts by limiting its access to new sources of oil. Russia's energy resources, the Times notes, are its "economic foundation." Among the possible effects of the sanctions:

  • Half of Russia's economy is controlled by the government, the Times observes, but business leaders outside that sphere are growing concerned about anti-Western sentiment and its dangers to development, a Putin ally recently told state news.
  • The economy is already struggling, and the new sanctions could require the government to support firms burdened by debt, economists say, per CNBC. "If nothing else, the pickup in investment needed to revive Russia's ailing economy is starting to look ever more unlikely," they say in a letter to clients.
  • Russia could hit back with an energy embargo against European countries. Foreign minister Sergey Lavrov, however, said this week that "to fall into hysterics and respond to a blow with a blow is not worthy of a major country," the Times notes. What's more, Russia would be seriously hurt by the loss of revenue involved, CNBC notes, potentially leading to "a deep recession," says an expert.
  • Russia has already launched what may be a form of retaliation, Reuters reports: It banned the majority of Polish fruit and vegetable imports. The rest of the EU could soon face a similar ban, Russia says. The country, which is the top export market for EU fruits and vegetables, says the ban is tied to health concerns.
  • The UK is among countries facing economic fallout from the sanctions themselves, as Russian borrowing from British banks is halted. The sanctions "will affect our economy ... but you can't make an omelet without breaking eggs," says British foreign secretary Philip Hammond, per Sky News.
  • Even outside the sanctions, Russia's leadership may have a lot to answer for when it comes to investment, notes the Economist, which figures that Vladimir Putin may have cost investors some $1 trillion. That's because investors are wary of Russian assets amid concerns about corporate governance in the country—leading to giant discounts on Russian stocks abroad.

Russian President Vladimir Putin meets with Head of the Jewish autonomous region Alexander Vinnikov in the Kremlin in Moscow, Friday, July 25, 2014.
Russian President Vladimir Putin meets with Head of the Jewish autonomous region Alexander Vinnikov in the Kremlin in Moscow, Friday, July 25, 2014.   (AP Photo/RIA-Novosti, Mikhail Klimentyev, Presidential Press Service)
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