After a series of moves that proved far more effective, but were almost as complicated as astro physics, Russia dropped an anvil on Ukraine and annexed Crimea. In response, Ukraine’s acting Prime Minister Arseniy Yatsenyuk signed a political association agreement with the European Union (EU), and the United States slapped sanctions on some of Russia’s President Vladimir Putin’s wealthy allies and Bank Rossiya.
The EU also took action although the BBC reported Russia’s foreign ministry called the European Council’s decision to impose sanctions “regrettable” and “detached from reality.” European and Russian economies are interdependent. Twenty-five percent of the EU’s gas comes from Russia, and more than one-half of Russia’s budget is derived from oil and gas sold to the EU. In addition, experts cited by the BBC indicated sanctions on Bank Rossiya could tie up monetary transactions in EU banks and potentially affect individual European countries’ business dealings with Russia if economic sanctions are implemented.
Economists cited by The New York Times said, “The uncertainty that now hangs over nearly every profitable enterprise in Russia is what poses the gravest threat to the country’s long-term prosperity, rather than any immediate consequence of the specific sanctions.” While many of Putin’s allies seemed relatively unaffected by the sanctions, at least one has experienced consequences. Reuters reported Russian billionaire Gennady Timchenko was forced to sell his ownership stake of almost 50 percent in a global commodities trading firm after sanctions against him disrupted the company’s operations.
Russian markets have been unsettled by recent events. Consumers and businesses already have been stung by interest rates which are very high by western standards and may move even higher. Rating agencies, like Fitch and Standard & Poor’s, have warned they will downgrade Russia’s credit rating. Russian consumers have been thwarted as both Visa and Mastercard have stopped doing business with Russian people or companies that have been targeted by sanctions.
U.S. stock markets remained relatively blasé about events overseas but were alarmed by Federal Reserve Chairman Janet Yellen’s comments during her first quarterly press conference. She suggested the Fed might begin tightening interest rates in 2015, just a few months after tapering ends.