Russia's business community was relieved to hear news of the sanctions imposed by its western allies in response to Moscow's deployment of troops in the separatist areas of eastern Ukraine.

The indices on the Moscow stock exchange rose again on Tuesday afternoon – after falling sharply on “black” Monday.

Most analysts agree that the new sanctions will only have a limited impact on the Russian economy, at least in the short term.

Catherine Wagner

Business correspondent for Russia and the CIS based in Moscow.

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The restrictions on Russian government bonds announced by Washington and Brussels are considered to have the greatest consequences.

Europeans will be completely banned from trading in Russian government bonds;

however, the proportion of European investors in the Russian government bond market is rather small.

American funds, on the other hand, are well represented among the foreigners.

From March, they will be banned from buying Russian debt on the secondary market – that is, paper that is already in circulation.

On the primary market, Americans have been banned from buying Russian debt securities in foreign currencies since 2019, and also in rubles since last year.

Nevertheless, according to the central bank, foreigners still held around a fifth of Russian government bonds in January – worth around 64 billion dollars.

A radical step that Washington has already suggested, but which has so far not materialized, would be a ban on all dealings with Russian sovereign debt.

It would cause many foreign investors to sell their shares and trigger a massive outflow of capital within a short period of time.

In the long term, this will slow down growth

Experts point out that Russia does not urgently need to borrow money on western financial markets.

At around $56 billion, foreign debt is low compared to foreign exchange reserves, which total just over $630 billion.

The economist Elena Ribakova from the Institute for International Finance wrote on Twitter that the liquidity surplus of Russia's banks with 64 billion dollars could largely offset the failure of foreign investors.

In recent years, Russia's state banks have increasingly bought Russian government debt.

Nevertheless, the restrictions are likely to slow down Russia's already weak growth in the long term, as it will become more difficult for the state to borrow large sums for expensive infrastructure projects, for example.

Western measures against Russian banks are also limited and have so far not been directed against the largest state-owned institutions Sber and VTB, which play a central role in financing the energy sector.

Instead, Washington targeted the state bank VEB, which it had already sanctioned in 2014 and which is one of the largest Russian financial institutions by assets.

However, the VEB does not have a banking license and is a kind of special financial instrument for Kremlin projects.

Also under US action is Promsvyazbank, which was nationalized in 2017 and turned into a financing vehicle for US-sanctioned defense industry suppliers.

London sanctioned Rossiya Bank

The EU has also announced punitive measures against 27 banks and companies that support the Russian army in the breakaway territories and the separatists;

this list should also not include any of the major banks.

The institutes that have been sanctioned so far are either "marginal" or those that the Kremlin considers "toxic" anyway, said the expert on Russia sanctions, Maria Schagina, of the FAZ

The effect of the measures should therefore be minimal.

Apparently they want to keep their trumps and "not hit Sberbank just yet".

Schagina also considers the exclusion of the separatist areas from the free trade agreement between the EU and Ukraine to be ineffective, since there is hardly any trade with the regions anyway.

The personal measures announced by the three allies are also unlikely to have any economic consequences.

Great Britain put the Kremlin-related entrepreneurs Gennady Timchenko as well as Igor and Boris Rotenberg on a sanctions list, all of whom have long been subject to punitive measures by the United States.

Washington also imposed measures against some of the children of influential Kremlin officials: Denis Bortnikov, son of the head of the domestic intelligence agency FSB and deputy head of the important VTB bank;

Promsvyazbank head Pyotr Fradkov, whose father used to head the foreign intelligence service; and Vladimir Kiriyenko, son of the powerful deputy head of the presidential administration and recently head of media holding VK, which owns the Russian Facebook counterpart Vkontakte.

Sanctions expert Schagina calls the freezing of assets and other personal sanctions a "cheap measure that does not cause any costs in the West".

The goal of stirring up dissatisfaction within the power elite in this way and thus weakening the regime has not yet been achieved.