France Threatens to Cancel Russian Ship Contract Over Crimea Annexation

[ProSense]

France Threatens to Cancel Russian Ship Contract Over Crimea Annexation

—By Kevin Drum

So what can Europe do to express its displeasure over Russia's annexation of Crimea? Robert Farley writes that France is currently building a pair of amphibious helicopter carriers for Russia's Pacific fleet:

That sale is now in considerable doubt. Because of Russia’s invasion and presumed annexation of Crimea, the European Union is considering a variety of sanctions against Moscow. The biggest stick, in military terms, may be the Mistrals, a pair of 21,000 ton warships capable of carrying over a dozen helicopters, in addition to a well-deck for amphibious landing craft. That the Russians chose to name the second ship Sevastopol, after a city not in Russian possession until after the recent invasion, only makes the sale so much uglier from the European point of view.

....The purchase of the Mistrals (which was to include a pair of ships built under license in Russian yards) was controversial in Russia, given that it represented a transfer of scarce defense monies to a major foreign contractor. Some Russian analysts also expressed concern about what technologies the ships would include. However, given the inability of Russian yards to turn out large, quality ships since the end of the Cold War, the Mistrals represented the best chance of adding aviation and amphibious capabilities to Russia’s decaying fleets.

That final sentence is crucial. Russia didn't agree to buy French ships because it wanted to. It signed a deal to buy French ships because it had to. The Russian military may still be able to take on Crimea or South Ossetia—neither one larger than Vermont—but it no longer has the capability to do much more. For all his nationalistic bluster, Vladimir Putin has done nothing to address this shortfall, contenting himself instead with creating a comfortable, oligarchic state that can, for the time being, live off its mineral wealth. Putin may or many not decide to invade Eastern Ukraine, but if he does, he'll only do it if he believes that Ukraine will fall with barely a shot fired. He really can't afford to fight a serious war.

In any case, the French foreign minister said today for the first time that the Mistral deal might well be canceled—but only if other countries pitch in. "We will ask others, and I'm thinking namely the British, to do the same with the assets of the Russian oligarchs in London," he said in a TV interview. "Sanctions have to be shouldered by everyone."

http://www.motherjones.com/kevin-drum/2014/03/france-threatens-cancel-russian-ship-contract-over-crimea-annexation

[ProSense]

1. More on potential impact of sanctions:

Londongrad Dealmakers Face Sanctions Hit After $180 Billion Boom

By Matthew Campbell and Morgane Lapeyre

Russian companies have made $180 billion in deals globally in the past two years, providing steady profits to London bankers, lawyers, and image crafters as the city has become a hub for such transactions. Sanctions planned by the U.S. and European Union threaten that business.

The potential fallout highlights the web of connections linking Russia to the global financial system. Since many large Russian companies are controlled by the state or by billionaires with close ties to President Vladimir Putin, even narrowly targeted sanctions could hurt their global operations.

<...>

“There’s a huge amount of business, both industrial and financial, in both directions between the West and Russia,” said Dominic Sanders, a partner in Moscow at law firm Linklaters. “The further the sanctions and retaliation go, the greater the pain.”

While wealthy Russians have fanned out across Europe, with businesses incorporated in Luxembourg and Cyprus and homes in Switzerland and the south of France, their impact has been most keenly felt in the British capital. Advisory professionals in the city, dubbed “Londongrad” in a 2010 book by journalists Mark Hollingsworth and Stuart Lansley, have been instrumental in Russian deals.

<...>

The instability spawned by the Ukraine crisis is beginning to dent that. Billionaire Vladimir Evtushenkov’s children-goods retailer Detsky Mir Group is postponing a planned London share sale because of tensions over Crimea, according to people familiar with the matter. The company declined to comment.

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http://www.businessweek.com/news/2014-03-17/londongrad-dealmakers-face-sanctions-hit-after-180-billion-boom

Foreign Investors in Russia Vital to Sanctions Debate

By LANDON THOMAS JR.

As the United States and Europe move to punish Russia for its conduct in Ukraine and Crimea with official sanctions, a subtle approach could prove more powerful: pressuring large global investors to reduce their sizable holdings in Russia.

Since central banks began injecting enormous amounts of cash into the worldwide economy in 2009, more than a quarter of a trillion dollars has flowed into the coffers of Russia Inc., part of a broad push by yield-hungry investors into emerging markets.

Most has found its way to companies controlled by the state. Gazprom, the Russian energy giant at the heart of evolving dispute with the West, counts the American mutual fund giants Pimco and BlackRock among its largest investors and creditors...some analysts and economists are pushing for an end to this easy money, a move that would choke off critical funds.

Officials are not likely to take such a major step soon — or ever. Governments are loath to interfere with the free flow of capital; the Obama administration has urged caution in pushing measures that might upset fragile markets. And institutions, with a penchant for profit, generally do not like such restrictions.

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http://dealbook.nytimes.com/2014/03/17/foreign-investors-in-russia-vital-to-sanctions-debate/

There is also this admission made before the sanctions were officially announced:

Russian government admits economy in crisis as Ukraine weighs

By Darya Korsunskaya and Lidia Kelly

(Reuters) - Russia's government acknowledged for the first time on Monday that the economy was in crisis, undermining earlier attempts by officials to suggest albeit weakening growth could weather sanctions over Ukraine.

Moscow markets wait to see the full scale of western measures over the seizure of Ukraine's Crimea and support of its referendum to join Russia, after losing billions of dollars in recent weeks in state and corporate money.

For weeks, Russian officials have said the confrontation between Moscow and the West over Ukraine that threatens economic sanctions and asset freezes would "weigh on the economy".

Although not speaking directly about the impact from the conflict, Deputy Economy Minister Sergei Belyakov said on Monday the economy was in trouble.

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http://www.reuters.com/article/2014/03/17/us-russia-economy-crisis-idUSBREA2G0RF20140317