A STORM OF SANCTIONS

Dark clouds are gathering over Russia. But then again, one may well say that a veritable storm of sanctions is already raging over the Kremlin.

The New World and the Old World have reached a consensus that Moscow should be punished. Though the findings of experts investigating the crash of a downed Malaysian Boeing are not yet available, White House Press Secretary Josh Ernest said that "Russian President Vladimir Putin is nevertheless guilty of the airliner crash." Moreover, according to Washington, Moscow continues to provide full support to separatists in southeastern Ukraine. Germany, Europe's largest economy, speaking through the lips of its Finance Minister Wolfgang Schaeuble, said that on the issue of tougher sanctions against Russia, Germany's economic interests were secondary to the task of "safeguarding peace and stability."

The United States and the European Union have concurrently imposed a third round of sanctions covering not only certain individuals and companies of Russia but also industrial sectors. Sectoral sanctions restrict access of Russian state-owned financial institutions to the capital markets as well as place an embargo on trade in arms with Russia and the ban on exports to Russia of dual-use items intended for the military sector. Russia's access to sensitive technologies, "particularly in the oil industry," has also been limited.

In particular, EU citizens and companies can no longer buy or sell new shares, bonds or "similar financial instruments" with a maturity of over 90 days, issued by Russian state-owned banks, development banks (Vnesheconombank) and their subsidiaries.

The EU will also restrict exports to Russia of technology and equipment necessary for the modernisation of the Russian oil industry. A special regime of export licences will be established, and such licences will be denied if they relate to technology for deepwater drilling, shale oil extraction and development of the Arctic shelf.

As a result, the sanctions now cover a number of major players such as banks (VTB, Rosselkhozbank, Vnesheconombank, Gazprombank), gas and oil producing companies (Novatek, Rosneft), as well as the largest companies of Russia's military-industrial complex.

Experts believe that Russia will experience serious pressure on its foreign exchange reserves. Capital outflow may reach or even exceed 200bn US dollars. It is estimated that Russia's economic losses due to the EU sanctions will amount to about 100bn euros over two years. Meanwhile, according to estimates of The Economist, Russia's cumulative losses from deterioration of the investment climate will be in the range of 1000bn dollars.

New sanctions imposed by the US against Russia in connection with the events around Ukraine will lead to zero or negative growth in the Russian economy, US Treasury Secretary Jacob Lew said. The worst thing for Russia is, of course, restrictions on access to technologies the situation with which is not so good in the country.

That was not all, however. The Permanent Court of Arbitration at The Hague ruled to satisfy in part the claim of former Yukos shareholders to Russia, which instantly became breaking news. According to the ruling, Moscow has been ordered to pay 50bn dollars in damages (instead of 114bn dollars claimed in the lawsuit) to Yukos shareholders including Hulley Enterprises (39.9bn dollars), Yukos Universal (1.8bn dollars), and Veteran Petroleum (8.2bn dollars). In the opinion of the Court, the Russian Federation violated the Energy Charter and initiated a tax case against Yukos with a view to bankrupt it and expropriate its assets for the benefit of Rosneft. Furthermore, the European Court of Human Rights awarded former Yukos shareholders 1.86bn euros in compensation based on their complaint against Russia, which was reviewed back in 2011.

The Russian finance ministry said the ruling was politically biased and that the ministry would challenge it in Dutch courts. As pointed out by the Russian side, proceedings in the case have been going on for several years, and for some reason the decision has been made at a time when the country is exposed to all sorts of sanctions.

Officials also point to the fact that Russia has not ratified the Energy Charter and merely signed an accession agreement, which means that the case cannot be heard in The Hague court.

In the meantime, Rosneft, which acquired most of Yukos' assets after the latter's bankruptcy, distanced itself from the scandal and said that it was not a defendant on the basis of the Court ruling because it was not a party to this case. New litigation can drag on for years and get on everyone's nerves. But that is not the point.

Tim Osborne, Executive Director of GML, which originally filed the claim, says that now Rosneft cannot be 100 per cent confident in the safety of its assets in the West.

So, strict international sanctions and a tough decision made by an international court. "Today, Russia is once again isolating itself from the international community... This is a choice that Russia, and President Putin in particular, has made," US President Barack Obama said. The head of the White House stressed, "It's not a new Cold War.  What it is, is a very specific issue related to Russia's unwillingness to recognise that Ukraine can chart its own pat." Indeed, it appears that Washington and Brussels are willing to go far enough in an effort to protect Kiev from the Russian threat. The EU decided to punish Moscow even to its own detriment. Thus, according to the estimates of the European Commission, the EU's losses due to sanctions against Russia can reach 40bn euros this year and 50bn euros in 2015, i.e., they may in fact be equal to Russia's losses. However, thanks to the efforts of Germany, sanctions are temporary and can be reviewed after three months.

It is noteworthy that, judging by the nature of new punitive measures, Western countries decided to target the Russian oligarchs. Among those targeted are representatives of major Russian businesses who, according to Brussels, belong to the so-called "inner circle" of the Kremlin, including Arkady Rotenberg (owner of the Northern European Pipe Project and a board member of the road construction company building the Moscow-St. Petersburg toll highway through the Khimki forest), Yuri Kovalchuk (co-owner and chairman of Rossiya Bank and the owner of the National Media Group), Nikolay Shamalov (the other co-owner of Rossiya Bank) and others. It is expected that in fear of financial losses and travel restrictions, the oligarchs who are accustomed to spend most of the money and most of the time outside of Russia will do everything possible to stop the Kremlin from further confrontation with the West.

Against this backdrop, many observers believe that the ultimate goal of the West is not only - and perhaps not just - support for Ukraine, but also a change of the ruling elite in Russia. This idea is hard to believe now that Putin's popularity among the Russians is at its peak, but who knows what will happen if he is unable to impart the desired vector to patriotic sentiments and forced to resist the inevitable deterioration of the economic situation in the country on a day-to-day basis?

In this situation, rumour about the differences among the associates of the Russian president cannot be regarded lightly. Der Spiegel was seemingly the first to report it, citing the Federal Intelligence Service (BND) of Germany. According to information available to Berlin, there is a struggle going on in the Kremlin between hardliners and prominent businessmen, i.e. the oligarchs. Now the ultimate question for the Russian authorities is, what interests will prevail - financial or national? However, a story about the confrontation between the business elite and government officials who hail from security services is not new. Notably, some of the players are right in the middle of this confrontation, while some of them have managed to change their "base camps."

What is next? Will Putin be able to withstand sanctions in such tough conditions? And where is his main opponent - overseas or at home?

A statement by Russian Foreign Minister Sergey Lavrov is quite remarkable in this respect: "We are not happy about it, the same applies to the European countries introducing these sanctions and we know that. But, I assure you, we will overcome any difficulties that may arise in certain areas of the economy, and maybe we will become more independent and more confident in our own strength, this is also good." Meanwhile, the Russian president is apparently going to continue resistance too. For example, he posed the problem of phasing out imports from Russia's industry in an accelerated mode. According to the head of the Kremlin, this measure is necessary in case the foreign partners do not fulfil the signed contracts, and especially in the defence sector. Therefore, it is imperative to change over to the domestic materials and components as soon as possible.

However, the problem does not rest with materials and components alone. To be truly independent in the international arena, Russia needs to create a new national model of economic and social development, just as a new personnel policy, an updated decision-making mechanism, an improved ideology, education, and culture. In the meantime, the Russian leader will have to demonstrate in the near future, how far his authority and influence really extend in the country.