Sanctions – impact and repercussions

The word "sanctions" has been in media headlines for several months, but it is quite difficult to find a complete and structured analytical article on this topic. We decided to do a brief overview of the sanctions against Russia introduced by the US and EU. Also, we provide examples of responces to sanctions expressed by Russian companies' from different industries.   

Actions against Russia 

According to some countries and international organizations, Russia's recognition of the Crimean referendum in March 2014 was illegal. As a response to such geopolitical position of Russia, the United States and the European Union have announced sanctions against the country. The implementation of sanctions against Russia was made step-by-step after major events listed below:

  • First round: Crimea accession to the Russian Federation (March)
  • Second round: Russia was accused of supplying arms to the rebels as well as in open support of self-proclaimed republics, Donetsk People’s Republic and Lugansk People’s Republic (April)
  • Third round: Malaysian Boeing-777 collapse (July)
  • Fourth round: “Russian alleged role in the Ukrainian crisis” (September)

Subsequently several countries such as Japan, Switzerland, Australia and others to some extent supported the sanctions previously introduced by EU and the United States and joined the group.

The US and EU imposed two types of sanctions against Russia: sectorial and personalized. Sectorial sanctions affect Russian companies in the financial sector, the oil and gas industry, the military-industrial complex. Restrictions are also placed on the development of infrastructure and telecommunications in Crimea and Sevastopol. Personalized sanctions were applied on some Russian organizations and a list of persons. Due to the fact that sectorial sanctions have a stronger impact on the Russian economy in general, we would like to analyze this issue in detail. 

Key sectorial sanctions:  

Financial sector 

 Companies in EU sanctions list: Sberbank of Russia, VTB, Gazprombank, Vneshekonombank, Rosselkhozbank, Russian National Commercial Bank
 Companies US sanctions list: Sberbank of Russia, VTB, Gazprombank, Vneshekonombank, Rosselkhozbank, Bank of Moscow


Financial sector sanctions implemented by the United States and the EU are very similar: for USA and EU residents, companies and banks issuing any debt and buying or selling new bonds or equity of these banks are forbidden (with a maturity of more than 30 days). For listed banks, transactions with accounts in USA/EU banks, investment consultancy, investment portfolio management and organization of private offering are also prohibited.

Analysis of consequences:

To compare with other restrictions the financial sector sanctions will have the greatest impact on the Russian economy as a whole. This is due to the fact that these sanctions affect banks, which account for over 60% of Russian banking system assets. These sanctions contains a serious constraint to the development of the whole country: Russian companies which are used to attracting funds in largest Russian banks (which respectively were often financed by EU/US banks) cannot do that easily anymore. In the long run, sanctions against the financial sector will lead to an increase in rates and a cost rise of funding for Russian companies, which in turn will inevitably affect the investment level and economic growth.

According to the head of Sberbank, German Gref, the situation with the foreign exchange liquidity has already worsened significantly. It is clear that with the state aid, which some banks have already received, the situation is not fatal but still is very serious.


Oil & Gas sector

  Companies in EU sanctions list: Rosneft, Gazprom Neft, Transneft, Chernomorneftegaz, Feodosia, Novatek  
 Companies in US sanctions list: Rosneft, Gazprom Neft, Transneft, Chernomorneftegaz, Gazprom, Lukoil, Surgutneftegaz, Novatek 


American companies are prohibited from providing oilfield services for the development and extraction of oil in deep water in the Arctic and shale reserves. For USA and EU companies the supply of technology and equipment which is necessary for the development of offshore fields for Russian clients is banned.

A ban especially for Transneft and Gazprom Neft: any deals, financing and other transactions with the new long-term debt, transactions with new shares and the provision of investment services to assist its offering and any other operations with restricted securities are prohibited. Such restrictions are also applied to Rosneft by the EU.

Due to these sanctions joint projects in the oil and gas industry have suffered the most, because western companies refuse to continue the "dangerous" cooperation. For instance, sanctions made a boomerang hit on the largest oil company Exxon Mobil, the company had to quit the joint oil extraction project with Rosneft in the Arctic Ocean. Two oilfield service companies, Schlumberger and Baker Hughes, are also willing to abandon projects with Russian companies.


Analysis of consequences:

Funding restrictions for oil companies and limitations applied on Russian banks may affect the development of the companies in O&G sector in the long run.

According to experts, in terms of technology, sanctions will hit only the extraction of hard-to-recover oil from the shelf, where the replacement of western technologies is hard to find. Even though these projects are not very significant for Russian O&G companies yet, the question of the equipment supply for new projects is still important. Chinese products cannot be claimed as reliable yet, and the amount of equipment manufactured in Russia is too little.

In opinion of the heads of Rosneft and Surgutneftegaz, sanctions will help to stimulate the development of domestically produced equipment. However, there is still a question how realistic it is to revive the industry in the near future. For example, experts believe that Rosneft’s announced plans to increase the use of domestically produced equipment in new projects to 70% by 2020 are unachievable due to a lack of Russian manufacturers and technologies. 

Military-Industrial Complex

 Companies in EU sanctions list: Almaz-Antey Concern, Kalashnikov, Basalt, Uralvagonzavod, Oboronprom, United Aircraft Corporation, Sirius Concern, Stankoinstrument, Khimkompozit, Tula Arms Plant, Tekhnologii Mashinostroeniya, Vysokotochnye Kompleksy
 Companies in US sanctions list: Almaz-Antey Concern, Izhmash, Kalashnikov, Basalt, Uralvagonzavod, KB Priborostroeniya, NPO Mashinostroeniya, KRET, Sozvezdie


For these companies there is a ban on the import and export of weapons, as well as the supply of "dual use" goods and technology which can be used in the defense industry.

A ban especially for companies "Uralvagonzavod", "UAC" and "Oboronprom": these two enterprises cannot attract long-term debts, any transactions with new shares and any other operations with restricted securities are prohibited.

United States Department of Commerce has also banned the supply of American-made spacecraft vehicles and those where American components are used to Russia. In this regard, the launches of European spaceships by Russian carrier rockets are postponed because American components were used in its manufacturing.

Analysis of consequences:

In general, the impact of sanctions on the companies of the defense industry does not seem critical due to their orientation on domestic demand and growth of the military industrial complex budget. Besides, the state have been financially supporting these companies even before sanctions implementation.

However, even those companies that are not under financial limitations will experience difficulties in attracting cheap loans, as most of the Russian banking system is affected by sanctions. Same as in the oil and gas sector, a number of major joint projects using western high technology will suffer (even non-military projects – see examples below).

Examples of Russian companies’ reaction on sanctions: 

After the analysis of the companies’ first reaction and newly developed strategies of bypassing US/EU sanctions, ALT consultants saw several basic pathways:

1. Seeking for the financial help of the State (National Wealth Fund/Central Bank)

2. Localization of production in Russia and finding new suppliers in domestic region or in countries that have not applied any sanction

3. “Look East” policy: companies are looking for both financial and services opportunities on Asian market



In general, we see two main consequences of sectorial sanctions. The Russian economy and companies will be affected terms of finance and technology.


1. Financial restrictions will have the greatest impact on the economy: limitation of access to foreign financial markets will cause the rise in cost of funding for Russian banks and organizations. Worsening of the financial condition both in enterprises affected by sanctions and in those who are not in sanctions lists because financial resources in the economy as a whole will become less available. Opportunities to attract cheap investment are seriously reduced which is quite critical for many infrastructure companies. In addition, the state will not be able to replace this funding to satisfy the appetites of all companies. It might take a long time to find the way out of this situation.  

2. From the technological point of view, in a short term restrictions will have an influence on individual technological projects (mainly in the field of oil and gas). It should be noted that even those companies which are not directly forbidden to work with may suffer, as many western partners will not take risk to continue the cooperation with Russian enterprises because of the instability of the current situation. Over the long term an effect of sanctions may become far greater. Companies are now cut off from the new technologies which cannot be replaced with Chinese or domestic ones soon. A ban on the import of “dual-use” goods and limitations of non-military high-tech products may also seriously broaden a technological gap between Russia and the leading countries of the world.

The Russian response to EU/US sanctions was food embargo, which we will discuss in a "food embargo" section. According to some allegations, among the potential countermeasures there are radical ones. For example, Russian officials are discussing the possibility of applying limited restrictions or a total prohibition for European airlines on making trans-Siberian flights from Europe to Asia, as well as a ban on the import of foreign cars.