Goldman: Russian Assets Will Soon Be “Uninvestable” Thanks To Sanctions

Following the most recent round of international sanctions against Russia over its invasion of Ukraine, Russian assets are becoming “uninvestable,”according to Goldman Sachs.

One key measure is looking to freeze the Central Bank of Russia’s roughly $630 billion foreign reserve stockpile, which would prevent the central bank from buying the Russian ruble from Western financial institutions and liquidating assets. This follows on the heels of actions last week that in effect excluded Russian banks from the Western financial system.

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New U.S. sanctions against Russian banks Sberbank and VTB will go into effect on March 26, but details of other sanctions are yet to be revealed by various governments.

The U.S., European allies, and Canada have also agreed to cut off key Russian banks from the SWIFT messaging system, which connects more than 11,000 banks and financial institutions in more than 200 jurisdictions.

This move would prove the most important yet, because it removes Moscow’s “main and first line of defense” against the depreciation of its local assets, said Kamakshya Trivedi, Co-Head of Foreign Exchange, Rates, and Emerging Market Strategy at Goldman Sachs. “So when you fast forward to today, if that main defense mechanism is completely inaccessible or not very accessible to Russian authorities, it’s going to mean much more significant pain and volatility in the local assets, and I think that’s what you are seeing.”

It may, however, be too early to determine the full impact these latest developments will have on Russia’s central bank. Many of the details on the employment of sanctions are still unknown, and there are some inconsistencies between the U.S. and EU in terms of which institutions will be targeted.

According to Trivedi, Russian assets becoming uninvestable has been a long time coming. Vladimir Putin had been waging this war for some time before finally crossing the line with his unprovoked invasion of Ukraine and forcing the West to respond with punitive economic measures.

“It was not the United States or the EU which started the war. Russia has started the war against civilization, against the 21st century, against the whole world,” Trivedi said. Now, Putin will have to decide whether his desire to expand his country is worth the immense economic hardship imposed on his people, which will only get worse as the war stretches on.