More Sanctions For Russia May Be On The Cards

US Secretary of State John Kerry says the sanctions imposed by his country and the European Union have had the desired effect on Russia’s economy, but they haven’t yet changed Moscow’s policy on neighboring Ukraine.

Speaking at a news conference at NATO headquarters in Brussels on Dec. 2, Kerry cited a forecast issued earlier in the day by Russia’s Ministry of Economic Development that Russia’s economy will contract by 0.8 percent in 2015. A previous ministry outlook had projected growth of 1.2 percent.

One reason is that the development of Russia’s largest export commodity, fossil fuel, has been hampered because Western energy companies are forbidden to join in ventures with Russia in complex extraction methods of extracting oil and gas from deepwater Arctic wells and shale.

Related: Russia Expects Oil Price To Rise, But Not Enough To Balance Moscow’s Budget

The slowdown of the Russian economy also is due in part to the plunging ruble. It has lost 40 percent of its value against the dollar as Russians, fearing economic isolation, exchange their currency for euros and dollars, thereby exporting the country’s wealth.

And on Dec. 1 Russian President Vladimir Putin, after meeting with Turkish President Recep Tayyip Erdogan in Istanbul, said Moscow would end its South Stream pipeline that had been intended as a way to ship oil to European customers, bypassing Ukraine. Speaking sarcastically, Putin blamed the failure on “our friends in Europe,” who are looking to find other sources of gas.

This hardship is the result of the sanctions, which target Russia’s oil and banking sectors, making it increasingly difficult for Russian energy companies to share Western technology and to get money from Western banks to finance their operations. The sanctions were imposed because of Russia’s annexation of Ukraine’s Crimean peninsula and support of armed pro-Russian separatists in Ukraine.

“Clearly the economy is feeling these sanctions,” Kerry told the news conference, citing the projection of a Russian recession in 2015, but he stressed that Russia could instead withdraw the economic and military pressure it has brought on Ukraine.

“Russia has the opportunity to make a very different choice,” he said. “We are prepared, as others are prepared, to sit down to negotiate reasonable ways in which all the parties can agree to very specific steps that can be taken in order to move in a different direction that is available.”

Related: Russia Might Be Forced To Cut Oil Production

One step would be even more sanctions if Russia doesn’t change its policy, according to a draft document read by Reuters. The paper says the leaders of the EU and the US would present more of a united front against Russia to change its Ukraine policy.

So far, EU nations have been more cautious than Washington, evidently fearing that tough sanctions on Russia could backfire on them, and that attitude hasn’t changed. NATO issued a statement condemning Moscow’s Ukraine policy, but even now European leaders have shown a less vigorous stance.

One, Federica Mogherini, the EU’s director of foreign policy, said, “Our role is also to explore ways for dialogue [with Russia].”

By Andy Tully of Oilprice.com

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