Running on empty

Sharper Sanctions May Force Russia to Plunder its Money Reserves

Putin Rosneft. Source DPA
Vladimir Putin plans use Russia's monetary reserves to bail out companies hit by Western sanctions.
  • Why it matters

    Why it matters

    U.S. and E.U. economic punishment of the Putin regime could make Russia back down in the Ukraine conflict.

  • Facts


    • Russia indirectly admitted for the first time that sanctions by the West are having an effect.
    • Russian oil, gas and weapons companies are particularly affected.
    • Long-term, the main concern for the German economy could be Russia’s failure to make economic modernization a top priority.
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Russia might have to open its treasure chest because of the new sanctions from the Europeans and Americans against the Putin regime. Russian finance minister Anton Siluanov has announced that the giant empire may be ready to use its whole fund for national prosperity to finance the projects of oil company Rosneft and gas company Novatek.

The West has put Russian companies and large banks on a penalty list, with the aim of forcing Russia to relent in the Ukraine crisis. On Friday, the European Union cut off important Russian weapons and energy companies from obtaining money in the E.U. financial markets. Three companies that manufacture airplanes, helicopters and tanks are also affected.

With the tapping of its own foreign exchange reserves, Russia was indirectly admitting for the first time that the sanctions are having an effect. In particular, the Kremlin wants to distribute its bunkered foreign currencies – $85.3 billion, amassed from oil and gas income surplus and meant for future generations – to Russian President Vladimir Putin’s closest advisors, including  Rosneft boss Igor Sechin, a longtime friend of Putin, and Gennady Timchenko at Novatek.

The United States is especially harsh to almost all large Russian energy companies: Washington has barred Rosneft and Novatek not only from financing through Western banks but also the delivery of equipment for the support and exploration of oil and natural gas in the deep sea, the Arctic and for shale.

America also put the largest private Russian oil company, Lukoil, the world’s biggest gas company, Gazprom, as well as Surgutneftgas, Transneft and Gazprom Neft on the blacklist. Gazprom, which supplies much of the gas used in Europe, has been spared by Brussels up until now. However, the company controlled by the Kremlin is going on the offensive: Gazprom might supply Poland with only the contractually agreed minimum of gas. Larger orders, which the contract also allows for, would not be fulfilled. Alexey Miller, Gazprom’s chairman, announced in June that countries delivering natural gas to Ukraine would be considered for cutbacks. That could soon threaten Germany and Slovakia, as well as Austria.

“The Russian leadership apparently does not see the economic modernization of its country as a priority in the long run.”

Marcus Felsner, Chairman, East and Central Europe Association

As retaliation against Western sanctions, Moscow threatens an import ban on cars, especially used cars, as well as textiles and refrigerators. Alexei Ulyukayev, Russia’s economy minister, confirmed over the weekend a corresponding Handelsblatt report on Friday, that a flyover ban for Western airlines over Siberia is also under discussion in Moscow.

The main concern for the German economy may not be the Western sanctions, said Marcus Felsner, the chairman of the East Europe association of the German economy, to Handelsblatt. “What’s more dramatic is that the Russian leadership apparently does not see the economic modernization of its country as a priority in the long run.”

The announcements of a Russian import ban caused concern in an auto industry that has already had to reckon with a Russian sales forfeit of around 25 percent. The textile branch also calculated heavy losses. “Outside of the E.U., Russia is the most important market for German textile and garment exports,” said Felix Ebner of the general association of textiles and fashion in Berlin.


An airspace ban would become costly for airlines, which would need to fly south to avoid Russian territory, meaning higher fuel costs, longer flight times, possibly even stopovers, effectively cancelling out the cost- saving efforts of recent years.

However, for European Parliament member Michael Gahler of Germany, economic cost calculations were taking a back seat to power politics deliberations: “If we can’t manage to stand united in this matter, we have lost.”

Up to now, four E.U. countries expressed concerns against further sanctions: Slovakia, the Czech Republic, Austria and Finland. In the Helsinki government, Foreign Minister Erkki Tuomioja was the main person fighting the sanctions. At his instigation, Finland was first to vote against any sharpening of the sanctions. In contrast, Canada was among the strongest advocates for sanctions against Russia from the beginning.

The United States and European Union are also using their central position in the global financial system as a power lever. American and European banks may grant Russian firms only short-term credit. The prohibition threshold was 90 days, but will now be 30 days. With that, it will be more difficult for the Russian economy to service its debts and put banks under pressure.  Ivan Chakarov, the chief economist at Citigroup in Russia, foresaw a credit crunch as soon as December.

Matthias Brüggmann is the head of Handelsblatt’s foreign desk, Moritz Koch is the newspaper’s New York correspondent. Ruth Berschens, Gerd Braune, Thomas Ludwig, Christian Schnell, Helmut Steuer, Georg Weishaupt and Vinny Kuntz also contributed. This article was translated by Anna Park Kim. Contact the authors: and

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