Russian Entities Beginning to Feel the Pinch

Russian energy companies and state banks are seeking to annul the European Council’s July 31st decision that legally barred them from raising funds in European capital markets.  These entities include the state oil group Rosneft, and other state lenders such as Sberbank, VTB, VEB, Gazprombank, Rosselkhozbank, and Gazpromnef. The EU sanctions, along with similar measures adopted by the US, were intended to punish Russia for “its illegal annexation of Crimea and deliberate destabilization” of Ukraine.

The Russian entities are optimistic about having the sanctions dropped. Similar measures that were imposed on Iranian and Syrian entities have been lifted when the European General Court found that European authorities failed to provide sufficient evidence linking the sanctioned entities to the countries’ unsupported activities. European courts rarely allow governments to present classified evidence under seal thereby making it difficult to explain the rationale for their sanctions.

However, even if the Russian entities eventually get the sanctions lifted, it will be only after the lengthy appeals processes have ended. Therefore, this legal action will not promise a quick relief from the economic pain the Russian entities are experiencing, unless they win substantial financial damages during initial court victories.

I believe that the court action against the European Council’s decision of sanctions on Russian  entities is proper in the sense that it deters Russia’s unsupported actions in Ukraine. Although Russia is not withdrawing from the conflict in Ukraine, this court action makes it clear that the sanctions are taking effect.  Since the appeals process will be lengthy, it may take some time before the sanctions start to influence Russia’s actions in Ukraine.  This will also be a reminder to Russia that the two economies are interdependent and Russia will need to choose its actions carefully to preserve its economic vitality.

The sanctions on Russian entities rather than solely on the Russian government are fair. One must remember that these are state backed entities. Imposing sanctions against these companies is similar to imposing sanctions against Russia itself, especially since the Russian government holds controlling stakes in all of them.

Do you think that it is fair that the European Council imposed sanctions on Russian entities rather than just the government? Is this court action a sign that economic sanctions are effective in deterring the unsupported activities of other countries?

Sources: Bloomberg, Financial Times

Picture: EurActive

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