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U.S. sanctions affect Russian businesses

March 26th, 2014

 

A political crisis is growing in eastern Europe. Most recently, Crimea, an autonomous region of Ukraine, was officially accepted into the Russian Federation, after a widely contested referendum in which 95.5 percent of the Crimean people voted to secede from Ukraine. Both the United States and the member states of the European Union have protested the secession, questioning Russia’s motives and intentions towards the small peninsula.

 

Allegations of foul play in the Crimean region and Ukraine have been levied against Russia by international organizations and governments alike, and late last week the United States, followed by the member states of the European Union, began the process of declaring sanctions against prominent members of Russian President Vladimir Putin’s inner circle and their businesses.

 

According to The Wall Street Journal, several large Russian businesses have already experienced major disruptions of business. Visa and MasterCard, both American companies, cut off their processing services for  customers SMP Bank and Bank Russiya (both controlled by members of Putin’s inner circle), which disabled the debit cards of many Russians. Many American banks, including JP Morgan Chase, publicly stated they would abide by the U.S. sanctions and halt any and all relations with Bank Russiya.

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U.S. sanctions also affected Gennady Timchenko, the founder and former owner of energy trading giant The Gunvor Group, who was forced to sell out to his entire stake to his former partner in the face of impending sanctions. The Gunvor Group, the fourth largest energy trader in the world, does business with all of the major international energy trading firms, most, if not all, of whom are publicly traded and mainstays of global equity markets. According to Reuters, the list includes Exxon Mobil, Royal Dutch Shell, Chevron and Conoco Philips.

 

According to Heritage Foundation, Russia is one of the largest global economies, with the majority of its economy depending on the export of natural gas and oil, as well as other raw minerals. According to the Wall Street Journal, several prominent American companies depend on Russia for certain raw minerals and as essential markets for their products; the largest American plane manufacturer, Boeing, depends on Russia for titanium to make its planes, while General Electric sells billions of dollars of medical equipment in Russia, and has billions of dollars in various leased assets in the country.

 

It’s not just large American corporations facing potential cuts in revenue and loss of investment. As stated in the Wall Street Journal, the president of Bombadier, Inc., a Canadian manufacturer of trains and planes, said, “We’re trying to see what kind of scenarios there could be.”

 

Editor’s Note: Information from The Wall Street Journal was used in this article.