Following the Malaysian Airlines tragedy on July 17, western
political pressure could intensify and, with it, the risk of moving into
Stage 3 sanctions against Russia, disrupting business interests instead
of causing a mere inconvenience, economists say.
Pro-Russian separatists and the Ukrainian government traded charges
about who was behind the surface-to-air missile that downed Malaysia
Airlines’ MH17, killing all 298 aboard on July 17.
“The finger of blame for the destruction of the Malaysian airliner is
being widely pointed at pro-Moscow separatists using a sophisticated
missile which, according to experts cited in the media, could only have
come from a Russian source,” Chris Weafer, founding partner of
Macro-Advisory, a Moscow-based business and investment consulting
group,wrote in an e-mailed note to investors on July 18.
“The separatists and Moscow are denying this and investigations are
underway. If the allegation is confirmed, the pressure on Moscow will
greatly intensify to much more clearly disassociate itself from the
separatists and to be seen to try and close the border to prevent
military equipment crossing into eastern Ukraine,” Weafer wrote.
If Russia does not take this verifiable action, the West will boost
political action and Washington and Brussels will make clear their
threat to move to more serious Stage 3 sanctions.
“Whether intentional or not the US and EU are now playing something
similar to ‘good cop, bad cop’, i.e. with the US ratcheting up the
rhetoric and expanding sanctions, while the EU has left open two more
weeks for discussions to try and avoid any additional sanctions,” Weafer
wrote.
Tragedy has the potential to bring Stage 3 sanctions closer.“We have
previously assumed that Stage 3 sanctions, especially from the EU, are
unlikely and nothing we have heard from the US or EU earlier this week
changes that." he wrote.
But the downing of MH17 is a potential game changer. "The only
question is how. Either the event will push Russia towards greater
isolationism as a response to the broadly based global criticism,
inevitable if the accusations are proven, or it will mark some sort of
end, or the start of the end, of the most dangerous phase in the
conflict in eastern Ukraine,” Weafer wrote.
The Moscow-based analyst predicted that investors will remain very
nervous of Russia risk until there is some clarity. “That means further
short-term weakness in the ruble, in equities and in debt prices. It
also potentially extends the period of self-sanctions by Western
companies and banks,” Weafer wrote.
He noted, however, that if Moscow is seen to be pro-active in ending
support for the separatists and looking for a resolution to the conflict
in eastern Ukraine the risk of moving out of Stage 2 sanctions will be
reduced and the ruble and equities will rally strongly.
“We will also be able to look at an unwinding of self-sanctions and
have more confidence for a better economic performance and
business/investment case for 2015 and beyond. If the opposite happens,
i.e. greater belligerency from Moscow, then capital markets will likely
quickly retrace the rally seen from mid-March and self-sanctions will
worsen,” Weafer wrote.
He said that accusations and threats – from all sides – are expected to escalate during the next two weeks.
The threat of sanctions is specifically linked to events in eastern
Ukraine and will remain high until the major military action has ended.
Ukraine’s President Petro Poroshenko is now clearly determined to bring
this to an end sooner rather than later because he is under huge
pressure domestically to do so and he needs to get on with Ukraine’s
Parliament, the Verkhovna Rada, elections. Therefore, the major threat
for investors and businesses in Russia is until the Ukraine military
declare victory, Weafer wrote.
http://www.neurope.eu/article/most-dangerous-end-game