Putin Says Sanctions Jeopardise U.S., EU Energy Deals
Comment of the Day

April 29 2014

Commentary by David Fuller

Putin Says Sanctions Jeopardise U.S., EU Energy Deals

Here is the opening from this topical report from Bloomberg:

Russian President Vladimir Putin warned that further economic sanctions over the Ukraine crisis may lead Russia to reconsider participation by U.S. and European Union companies in energy and other key industries.

While his government has prepared measures to retaliate for penalties imposed by the U.S. and its allies, Putin told reporters in Minsk, Belarus, yesterday that he doesn’t consider them necessary for now, though that may change.

If sanctions continue, “then of course we will have to consider who’s working and how in the Russian Federation, in the key sectors of the Russian economy, including energy,” he said. “We really don’t want to take these reciprocal steps.”

Putin’s remarks added uncertainty for companies that have stakes in Russia’s energy industry, including Royal Dutch Shell Plc and Exxon Mobil Corp. (XOM), which is planning Arctic drilling in an alliance with Russian state-controlled OAO Rosneft. (ROSN)

The Russian leader spoke hours after the EU expanded penalties against people close to Putin and companies tied to them, following similar steps a day earlier by the U.S., which yesterday called separatist violence in Ukraine’s east “terrorism, pure and simple.”

David Fuller's view

Sanctions between powerful countries are high-stakes poker with a considerable element of bluff.  Both sides hope that the adversary will fold rather than increase the ante. 

The investment crowd, keen to run with stock market bull trends, concluded today that EU governments were too timid, weak and dependent on Russian energy to engage in more than token sanctions.  The US is in a stronger position but investors appear to be hoping that the White House has no stomach for much more than bluster.

This view might just be right but neither the EU nor US has folded their hand of sanction cards to date.  Putin certainly hopes they will and he has just announced that further sanctions against Russians would require him to up the ante.  So far, this is a slow moving but serious game and it is not over.  Investors should be aware that risks of market turbulence are increasing.    

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