The US is ready to impose further sanctions on Russia for its continuing activities in Ukraine, and the markets are once more faced with uncertainty. This announcement is the latest development in US and EU exchanges with Russia over events in Ukraine and suspected Russian involvement. In November 2013, Ukrainian President Victor Yanukovych abandoned an agreement strengthening ties with the EU in favor of a closer relationship with Russia. That decision led to anti-Yanukovych protests in Ukraine, which became more violent as the unrest spread and intensified from November through February. On February 22, Yanukovych fled Ukraine after a political coup ousted him from power, and a new Ukrainian government took power. The new government’s Western leaning stance caused many in Crimea to seek support from Russia, which culminated in Crimea’s parliament voting to join Russia on March 6th. On March 16th, a referendum was held where 97% of Crimea’s voters decided to join Russia. Russia formally annexed Crimea on March 21.
The First Round of Sanctions
While the events in Ukraine were taking place, leaders in the US and the EU were determining how to respond to Russia’s involvement in the events. In response to the rising unrest in Crimea and Russia’s involvement, President Obama issued Executive Order 13660 on March 6th freezing the assets of any person “directly or indirectly” engaged in activities threatening the peace, disrupting the democratic processes, or misappropriating assets in Ukraine. The Executive Order set the legal authorization for further sanctions and allowed the US Department of Treasury to impose financial sanctions on individuals and entities meeting the Order’s definitions.
Similarly, the EU adopted Decision 2014/119/CFSP and Regulation 208/2014 on March 5th and 6th respectively. The two pieces of legislation directed EU member states to impose restrictions on the funds and economic resources “belonging to, owned, held or controlled by persons” involved in the misappropriation of Ukrainian state funds or who were responsible for human rights violations in Ukraine. The EU applied its sanctions against 18 named individuals, including former Ukrainian President Victor Yanukovych, Yanukovych’s family, and his close allies.
The most immediate business effect of the first round of US and EU sanctions was uncertainty. Although the US is not among the top ten trading partners with Russia, Russia “remains a crucial market for American retail, construction and energy companies, as well as some of the biggest United States banks.” Europe’s economy is more tightly integrated with Russia than the American economy is, with Europeans engaging in $460 billion in business with the Russian economy. In economic terms, the largest impact of the sanctions was to increase demand for investment in safe commodities, such as gold. With uncertainty looming heavy on the minds of investors, traders also invested in options markets to offset any potential losses that future tensions might create.
Second Round of Sanctions
Following the March 16th referendum where Crimean citizens overwhelmingly voted to join Russia, US President Obama passed Executive Order 13661. Order 13661 was a continuation of the sanctions already imposed, and it expanded the reach of sanctions by freezing assets of eleven named individuals, including former Ukrainian President Viktor Yanukovych and two aides of Russian President Vladimir Putin. The Order also allowed for expanding the reach of the sanctions to Russian officials, those persons or entities who “operate in the arms or related materiel sector in the Russian Federation,” or those persons or entities who “have materially assisted, sponsored, or provided financial, material, or technological support for, or goods or services” to Russian officials.
The sanctions imposed by the EU in response to Crimea’s vote to join Russia went further than those from the US. On March 17th, the Council of the EU adopted Decision 2014/145/CFSP and Regulation 269/2014 that imposed travel restrictions and asset freezes on an additional 21 Ukrainian and Russian officials. The EU sanctions prohibit any direct or indirect sharing of financial or economic resources with the named individuals or persons responsible for action that threatens the sovereignty of Ukraine. In contrast to those individuals named in the American list, which appeared to target high-ranking Russian officials, the EU sanctions were directed toward mid-level officials who may have been more “directly involved on the ground.”
The second round of sanctions seemed to effect an easing of tensions, which created positive gains from an economic standpoint. The day following the imposition of sanctions by the US and the EU, Russian President Vladimir Putin stated that Russia did not seek any further division of Ukraine. This in turn eased fears among investors because it assuaged much of the concern that the crisis would deepen: “The probability that things could get worse in eastern Ukraine is reducing,” one market strategist was quoted as saying in response to the second round of sanctions. As a result, stocks in both the US and Russia experienced gains following the March 17th sanctions.
Third Round of Sanctions
In an attempt to put more pressure on Russian President Vladimir Putin for Russia’s decision to annex Crimea, US President Barack Obama issued Executive Order 13662 on March 20th, which imposed another set of sanctions on Russia. The Order continued the sanctions already in place while naming a further twenty Russian officials whose assets were frozen. In addition, Order 13662 included sanctions against Bank Rossiya, Russia’s seventeenth largest bank, which resulted in prohibitions on trading with the bank. Targeting the bank was significant because the bank not only serves as a personal bank for many senior officials in Russia, but it also provides services related to the oil, gas, and energy sectors.
In lockstep with the US, the Council of the EU adopted Decision 2014/151/CFSP and Regulation 284/2014 on March 21st. The EU’s sanctions added travel restrictions and froze the assets of an additional 12 Ukrainian and Russian officials.
Prior to the third set of sanctions, the direct impact from the previous sanctions had been minimal. The third round of sanctions changed that, with Russia’s sovereign rating being downgraded (sovereign ratings reflect an opinion on “the future ability and willingness of sovereign governments to service their debt obligations to the nonofficial sector in full and on time”). Russia’s stock indexes opened significantly lower following the sanctions, and Visa and MasterCard ceased operations with Bank Rossiya. The sanctions also had the effect of injecting uncertainty back into the markets as it was unclear how long these sanctions would be in place and how far reaching the sanctions’ impact will be.
Although there have been no further official sanctions against Russia since Russia formally annexed Crimea, the situation remains tense. Pro-Russian forces have seized government buildings in Eastern Ukraine and armed men without insignias have been spotted in Eastern Russia, reminiscent of the unidentified armed soldiers present before Crimea declared independence from Ukraine. Continuing unrest in Eastern Ukraine has prompted officials in the EU and the US to consider the imposition of further sanctions on Russian officials. Based on the consequences of the previous sanctions, the only thing that can be certain is that markets will continue to face uncertainty until the situation is resolved.
Greg Henning is a 3L at the University of Denver Sturm College of Law and a General Editor for the View From Above
 On April 11, the US Department of Treasury imposed sanctions on seven Crimean separatists and Crimean-based Chernomorneftegaz, a gas company. The impact of those sanctions remains to be seen at the time of writing this article.