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Tracing Russian Economic Assets – and Targets for More Sanctions

12:12 PM, Apr 2, 2014 • By STEPHEN SCHWARTZ
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The Lukoil price controversy in the northeast U.S. remains unsettled. As Gazprom pursues contracts with the Germans, Lukoil is negotiating with French energy giant Total for exploitation of shale oil deposits in Russia, described by the Financial Times on March 28. The Bazhenov shale oil formation in West Siberia is estimated by the U.S. Energy Department to be the biggest in the world.

Neither Gazprom nor Lukoil has been directly targeted by U.S. post-Crimea sanctions on Russia. Gennady Timchenko, a founder of commodity firm Gunvor, which is involved in energy trading, and the brothers Arkady and Boris Rotenberg, participants in Gazprom dealings, are included in the list of Russian officials, members of the Putin inner circle, and one economic entity—Bank Rossiya, the private purse of the Moscow elite—sanctioned by the U.S. Treasury on March 20, 2014.

Back in the Balkans, another major Russian financial institution, Sberbank, established in 1841—that is, under tsarist rule—made its appearance recently on the streets of Sarajevo. Sberbank, a lending institution, entered the market in the so-called Federation of Bosnia-Herzegovina, which includes Bosnian Muslims and Croats, by purchasing the local arm of Volksbank, an Austrian enterprise. Sberbank functions in Ukraine, as well as Slovenia, Croatia, the partitioned Serbian zone of Bosnia-Herzegovina dubbed the “Republic of Serbs” or “Republika Srpska,” Serbia proper, the Czech Republic, Slovakia, and Hungary. Sberbank operations outside central Europe and Ukraine are found in Switzerland, Turkey, Belarus, and Kazakhstan—the latter pair inveigled into Putin’s “Eurasian Economic Union,” which seeks affiliation by Armenia, Tajikistan and Kyrgyzia, but which Ukraine, originally designated as a probable member, has not joined.

Sberbank said it will not abandon Ukraine in the aftermath of Putin’s Crimean occupation, although its branches shut down during violent demonstrations in Kiev, and its ambitions remain broad. On March 27, the Financial Times announced that Sberbank Europe, from Vienna, would close a deal on a credit line of 350 million euros through its Austrian subsidiary, supported by British banks HSBC and Barclays, U.S.-owned Citi and Bank of America, Japan-based Mizuho, Italian banker UniCredit, and the German groups Deutsche Bank and Commerzbank.

UniCredit has a Russian subsidiary, and extensive operations in the Balkans. Since the breakup of Yugoslavia, Austrian, German, and Italian financial enterprises have led the way in colonizing local markets, following the path of the Habsburg and fascist-era empires that sought domination in the region. The Austrian bank Raiffeisen, based in the cooperative movement, has extensive holdings in ex-Communist lands. It entered Russia in 1989 and in 2004 opened a “Non-State Pension Fund” serving Russian customers. The Financial Times, in a report from Zurich in Switzerland on March 28, described Russia as Raiffeisen’s “most profitable market.”

Raiffeisen, however, is jittery about Ukraine. The same Financial Times article of March 28 disclosed Raiffeisen’s warning that “due to the recent developments in Ukraine, the outlook for the Ukrainian, as well as Russian economy is marked by significant downside risks,” with an additional note stating “recent moves by the Ukrainian central bank to tighten currency controls would also hurt.” Raiffeisen had tried to divest itself of a Ukrainian subsidiary, Raiffeisen Bank Aval, which is the fifth largest Ukrainian bank in lending.

But the sale of Raiffeisen Bank Aval has been postponed because of the Ukrainian upheaval. Raiffeisen stated that its investment in Ukraine totaled slightly more than five billion euros at the end of February, plus 399 million euros in Ukrainian state bonds.

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