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Thursday, July 31, 2014 1:27 PM


Sanctions Starting to Bite the Hands That Promoted Them


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As I have said on numerous occasions, sanctions are a lose-lose game. So it is not surprising in the least to discover Russian Crisis Already Taking Toll on Western Businesses.

  • Shares in Adidas, the world’s second-largest sportswear group, dropped 15 per cent after the company issued a profit warning and said it would accelerate the closure of stores in Russia because of increasing risks to consumer spending in the region.
  • Volkswagen, Europe’s biggest carmaker by sales, reported an 8 per cent decline in sales in Russia in the first half of the year, compared to the same period a year earlier.
  • Joe Kaeser, chief executive of Siemens, warned geopolitical tensions including those in Ukraine posed “serious risks” for Europe’s growth this year and next.
  • Metro, the eurozone’s second-largest retailer, said events in Russia were creating risks for the group as it revealed sales had declined sharply in Ukraine.
  • Royal Dutch Shell’s chief executive Ben van Beurden said that along with other western oil majors he was assessing the impact of tightening sanctions on Russia’s energy sector imposed by the US and EU.
  • Erste Group, the third-largest lender in emerging Europe, warned the turmoil could impact banks in eastern Europe. “I can’t exclude any nasty surprises in the region due to political decisions or developments,” said Erste chief executive Andreas Treichl. “If the crisis accelerates of course we will have to revise our forecast for all over Europe in 2015 and 2016.”
  • The German machinery association, VDMA, lowered its forecast for growth in the industry this year as it said the Russian situation was starting to affect bilateral trade and weigh on demand in important sales markets.
  • Last week, Visa cut its fourth-quarter sales guidance, partially because of lower than expected cross-border transactions in Russia and Ukraine.
  • Bank of America has almost halved its exposure to Russia this year to $3.9bn.
  • ExxonMobil, which is developing a large liquefied natural gas export facility at Sakhalin in Russia’s far east, said it was awaiting further details to understand the effect of sanctions designed in part to prevent the transfer of new technology to Russia’s oil and gas industry.
  • In the City of London, bankers warned it was not feasible for Russian companies to list on the London Stock Exchange until a de-escalation of the crisis.

Russian Response

Bloomberg reports Russia Eyes Banning U.S. Chicken And Some European Fruit.
Facing tougher sanctions over Ukraine, Russia said yesterday it may ban imports of chicken from the U.S. and fruit from Europe and is investigating McDonald’s Corp. (MCD) cheese for safety.

Meanwhile, a Russian lawmaker has drafted legislation that might result in U.S. accounting firms such as Deloitte LLP and KPMG LLP being barred from doing business in his country.

While Russia and the U.S. have long sparred over agricultural trade, the actions fueled speculation they could be retaliatory. The 28-nation European Union and the U.S. plan to impose stiffer sanctions to punish Russian President Vladimir Putin’s government.

“It’s a troubling continuation/expansion of trade as a geopolitical tool,” Gary Blumenthal, president of World Perspectives Inc., a Washington-based agricultural consulting firm, said in a phone interview.
Geopolitical Madness

Sanctions are a form of Chicken Coupled With M.A.D.

So far, the damage is minimal, but if Putin angrily cuts off natural gas flows to Europe, or raises prices in response, all hell will break lose.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

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