This time it _is_ different

The latest from the US Treasury:

The U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC), in consultation with the Department of State, today designated seven Russian oligarchs and 12 companies they own or control, 17 senior Russian government officials, and a state-owned Russian weapons trading company and its subsidiary, a Russian bank.

In this context, “designated” is not just a technical term; it’s the Black Spot.

Obama’s administration mostly relied on sectoral sanctions to penalize Russian companies. In the oil and gas sector, companies like Gazprom, Rosneft and Novatek have been prohibited from raising debt or equity in the US and from ordering services or technology for Arctic, offshore and shale projects from US providers. However, US investors can and do hold and trade their shares and bonds issued before the sectoral sanctions were imposed. ExxonMobil has been forced to pull out of its Arctic and shale JVs with Rosneft but remains a shareholder and the operator of the Sakhalin-1 project.

Along with the Sectoral Sanctions Identifications (SSI) list, there exists a roster of persons and companies subject to far more restrictive, maximum-impact measures. It’s called the Specially Designated Nationals (SDN) and Blocked Persons list. If a company is placed on the SDN list (that’s what “designated” refers to above), it means that US investors may not own either its debt or equity and US residents may not do business with it. In addition, its US assets get frozen and it loses access to US banks’ services. It’s a draconian measure that can easily cripple a company that relies on exports to the US for a significant share of revenue. In the short term, a fire sale of its bonds and especially shares by American investors can sink their value.

Until today, the Russian companies on the SDN list (as opposed to the SSI list) weren’t particularly large or important to the country’s economy, with one or two exceptions, perhaps. Now, the updated SDN list includes “the biggest aluminum producer outside China,” and the new restrictions on this firm “entangle some of the world’s biggest businesses and financial groups.” This is quite unlike any of the previous rounds of sanctions: it “will reverberate around the world” because this “business empire has a global footprint and counts major multinationals as partners.”

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