Sanctions and Oil - Temporary Winners of a Conflict

Russia's political conflicts and the war that has been going on since Spring pushed the European Union to take measures. The imposed sanctions target Russia's defence, energy and financial sectors, which means restriction of the European financial markets for the major oil firms.

    
     (Photo: http://photos.prnewswire.com/prnh/20141031/713646-b )

However, Russia's retaliatory sanctions also have an impact on European economy: the restriction of imports of agricultural, food, meat, milk and metallurgical products will also result in recession in Europe, says Innovative Securities. The company adds that the Eurozone risks falling back in recession after its fragile recovery.

The financial situation of Russian companies is worsening, points out Innovative Securities. Companies need $54bn in the next months so they can pay their bonds and credits. They are demanding loans from the Russian central bank or the state's Reserve.

The Russian central bank intervened as the rouble fell to a new all-time low against the US dollar: 40 per dollar, the weakest since 1998. Due to this, the international reserves decreased by 11%, totalling $450bn in 2014.

Brent, representing Russia's main export, is also down 25% from its June high.

Due to the worsening conditions and sanctions the country is on the road to recession, says Innovative Securities. In addition, Moody's downgraded Russia's rating to Baa2 (with a negative outlook), the second-lowest investment grade.

However, Franklin Templeton Investments says the benefits of cheap Russian equity cannot be overlooked against world stock markets at historically expensive levels. See the RTS Indices since 2009.

Putin's regime was always financedby the high oil prices. But now low oil prices cannot satisfy the population's needs anymore, and there's distrust towards Russia due to the unstable investment climate and the corruption that makes the capital outflow from the country.

There are temporary winners in the system but we do need and hopefully will have an all-comprehensive and acceptable agreement that restores peace and that can end the Russian-Ukrainian conflict. Innovative Securities believes the negotiation process will take a long time. 

Visit: https://www.innovativesecurities.com

For more information: 

Andrey Stoyanov
[email protected]
+36-30-460-80-90