A continued escalation could mean a further and more serious step towards debasing the petro-dollar, which would in turn break the backbone of the American economy.
Deadly clashes in eastern Ukraine and warnings of broader US sanctions against Russia have sent tremors through Moscow’s financial markets and forced the country to cancel a sovereign debt auction yet again.
Russia’s RTS equities index fell to a one-month low, with Gazprom and Sberbank both down 3.5pc in volatile trading. Russia’s treasury pulled a 20bn rouble (£330m) bond auction intended to test the waters, saying there were no buyers at an acceptable cost. Yields on 10-year Russian bonds have jumped to 9.17pc.
Russian president Vladimir Putin admitted for the first time that US sanctions imposed after the annexation of Crimea are “causing damage” to Russia’s economy – already in or near recession – but insisted that the crisis had not yet become critical.
State-lender Sberbank said bond markets were almost completely shut for Russian banks, with companies and state bodies trying to roll over $712bn (£424bn) of foreign currency debt.
The authorities may have to raid the country’s reserve or national wealth funds to shore up the private sector, it said. Companies must refinance $54bn of foreign debt over the next six months.
“The situation has deteriorated significantly. Ukrainian events have sparked a massive capital outflow,” said Sberbank, estimating that $64bn left the country in the first quarter, including foreign exchange swap contracts.
“What we’re all worried about is another round of US sanctions. Even the domestic bond market is freezing up,” said one Moscow banker. “The US has all kinds of tools it can use against us and inflict tremendous damage.”
It is unclear whether the US is really ready to escalate to “Stage III” measures targeting major banks, mining companies or Gazprom and other energy groups.
Full article: Russia braces for crippling US sanctions as Ukraine turns deadly (The Telegraph)