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EU and US sanctions on Russia bite both ways

EU and US sanctions on Russia bite both ways Anthony Harrington

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While there is still no clear public trail of evidence linking Russia to the missile strike on Malaysian Airlines Flight MH17 from Amsterdam to Kuala Lumpur, which killed all 298 people on board, the EU and the US are convinced of Moscow's hand in the affair. Their argument is that while the missile strike might be the very last thing that Russian Premier Vladimir Putin wanted, the Russian rebels in Eastern Ukraine had to have Russian help to operate a sophisticated missile launch vehicle, even if it was a launch vehicle captured from the Ukrainian army. Therefore, ratcheting up sanctions on Russia makes sense.

The feeling is that while the shooting down of the airliner may well have been a grossly stupid mistake, in which a civilian aircraft at 33,000 feet was mistaken for a military aircraft, it is a mistake that could not have happened without Russia's mischief-making in the region.

As always, however, when it comes to applying sanctions, the opportunity for Sods Law to take a hand looms large. As has been pointed out by the media many times since Russia's annexation of Crimea, much of Europe depends on Russian oil and gas. As a result, those European countries who are most likely to feel the chill - literally - if Russia retaliates by cutting off or curtailing gas supplies, are very ambivalent about sanctions. This is why, until Friday 25th July, sanctions have been largely targeted at Russian oligarchs around Putin and at some officials. However, on that date, the EU extended the sanctions to include 15 officials and 18 entities, all of which are now subject too asset freezes and visa ban.

Russia has not taken this ratcheting up of sanctions lightly. The UK Prime Minister David Cameron has been at the forefront of calls for heavier sanctions on Moscow following the shooting down of the aircraft. As a consequence, by Thursday 24 July, Russia had begun threatening to nationalize the assets of British companies in retaliation - most notably the assets of BP and Shell.

This sounds like saber-rattling since Russia needs the expertise of western oil companies if it is to develop its vast reserves of Arctic oil and gas, which it has every intention of doing. Moreover the forced nationalization of oil company assets would of itself spark massive financial retaliation and would be bound to have a major negative impact on the Russian economy. There is also the not-so-small matter of the damage to Russia's status as a reliable trading partner, which is already seriously besmirched. But we are in emotional times, and Putin, together with those around him, may well act first and worry about the consequences later.

According to the Telegraph, an unnamed Moscow diplomat warned that Moscow would fight back against any industry-wide EU sanctions by putting British companies working in Russian oil on the frontline. "BP and Shell have a lot of assets in Russia," the diplomat is said to have warned.

This is not the first time the Russians have threatened a smash and grab raid on foreign assets. According to the Telegraph, in March senators around Putin wanted to see assets of European and US companies in Russia frozen in response to the round of sanctions imposed on Russia for the annexation of Crimea. Plus, of course, they can always threaten to turn off the gas. It is difficult to see how Europe could replace Russian gas in the short term, so this threat has teeth. However, it is never a very clever strategy to threaten your customers, since doing so tends to make them focus rather a lot of effort on finding alternative suppliers. Russia knows this and also knows that its economy is not in good shape, and will be in even worse shape if the EU gets serious about sanctions. The days and months ahead are likely to be difficult, with elephant traps on every hand...

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Tags: Malaysian Flight MH17 , missile strike , oil and gas , Russia , sanctions , Ukranian , Vladimir Putin
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