FILE – In this Monday, July 21, 2014 pool file photo Russian President Vladimir Putin listens during a meeting in Samara, Russia. Having for months dismissed Western sanctions on Russia as toothless, business leaders here are now afraid that the crash of the Malaysian jetliner will bring about an international isolation that will cause serious and lasting economic damage. The U.S. and EU are still playing something similar to “good cop, bad cop” with Russia, said Chris Weafer of the Moscow-based Macro-Advisory, but it remains to be seen whether the Malaysian plane crash will be a game changer for Russia’s economy. (AP Photo/RIA-Novosti, Alexei Nikolsky, Presidential Press Service, File)
MOSCOW (AP) — Having for months dismissed Western sanctions on Russia as toothless, business leaders here are now afraid that the crash of the Malaysian jetliner will bring about an international isolation that will cause serious and lasting economic damage.
Throughout the Ukrainian crisis, U.S. and European sanctions had mainly targeted a handful of individuals, sparing economic ties. Then last week the U.S. imposed penalties on some of Russia’s largest corporations. And when the airliner was shot down just a day later in Ukraine, allegedly by separatists with Moscow’s support, concern grew in Russia that the sanctions would only get worse as President Vladimir Putin showed little sign of cooperation.
“Over the past few months, there was a sense that Mr. Putin acted decisively, forcefully, and correctly, and that everybody else in the world would accommodate themselves to that reality and we’d get back to something like business as usual,” said Bernard Sucher, a Moscow-based entrepreneur and board member of Aton, an independent investment bank. “Now we’re talking about real fear.”
When Russia annexed Crimea in March, triggering a deep freeze in relations with the West, stock markets in Russia dropped but later rebounded as investors understood that the country’s lucrative trade relations would remain largely unscathed. Europe, which is in frail economic health, dared not block energy imports from Russia or the trade in goods such as cars or heavy machinery. Oil companies like BP and ExxonMobil continued their operations in Russia, with some even signing new deals.
The U.S. took a tougher stance, but until last week was also careful to limit sanctions to asset freezes on individuals who were perceived to have had a hand in supporting eastern Ukraine’s insurgency.
On July 16, the night before the Malaysia Airlines jet crash, Russian markets appeared to have fully recovered from the crisis in Ukraine, with the MICEX benchmark index adding roughly 23 percent since March 1.
Then last week, the U.S. announced new sanctions that had investors in Russia fear a turn for the worst. The U.S. shut off its financial markets for a broad swath of defense companies as well as Russia’s largest oil company, Rosneft, gas producer Novatek, which is half-owned by a close Putin ally, and a major bank, VEB. The move offered investors a glimpse of what they had thought would never happen: serious international isolation of Russia’s powerhouse corporations.
According to Alexis Rodzianko, president of the American Chamber of Commerce in Russia, those sanctions were the first to really pack a punch because they were “broader and more specific: they went beyond the symbolic.”
Rodzianko said anecdotal evidence suggests that in some cases investment decisions have been delayed “particularly when people were just considering coming in to the market.”
When the Malaysian airliner went down one day later, investors worried conditions would only get worse.
The stock market has fallen 5 percent since Thursday last week. That is expected to see investors keep pulling money out of the country. They withdrew $74.6 billion in the first six months of the year, a figure forecast to reach $100 billion for the whole of 2014 — almost twice the $60 billion in withdrawals seen last year. Continue reading