Sanctions Hit Russia Where It Hurts: Behravesh

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July 24 (Bloomberg) -- IHS Chief Economist Nariman Behravesh discusses sanctions against Russia in the wake of the Ukraine crisis and Malaysian Air Flight MH17 downing. He speaks on “In The Loop.” (Source: Bloomberg)

Also the author of "spin-free economics," either the way, so is a good perspective.

My question is when do u.s. companies pull out, wash their hands of russia and walk away?

To some extent, russian -- u.s. companies have already pulled out.

Russia, ub for this entire thing with crimea and the you -- even before this thing with crimea and the ukraine, they discouraged foreign companies coming in and doing business.

They are protective of their resources.

Resource nationalism, if you will.

The business environment has already discouraged u.s. companies from going back in, and they have not been doing that much.


Once the whole thing with ukraine, the conflict started, the annexation of crimea occurred, you started to see capital leaving russia.

We have had over $65 billion in capital leaving russia over the last six months, the same as 2013 so it has accelerated.

These particular sanctions add to that, and, in effect, they are hitting russia where it hurts, there is no question about it.

They are meaningful sanctions.

To your point, it being heard on that front, in particular we also heard that norway's 800 $90 billion sovereign wealth fund is reassessing holdings in russia.

-- 890 billion dollar sovereign wealth fund is reassessing holdings in russia.

Explain what that means?

Russia desperately needs foreign capital to finance a lot of the projects, oil expiration and activities, and if they do not get this, whether it is directly in the capital markets or to investment from the sovereign wealth fund, in the case of norway, they are sunk, basically, because it will mean a big drop in capital spending, and it will mean they will go into a deeper recession they -- than they are already in.

They are a shallow recession right now.

This is bad news for the russian economy.

The russians will pay, economically, a very heavy price for this.

What will russia do?

Will they look to the east and china?

How much will this isolate them?

China is interested in working some kind of a relationship with russia, but china will not replace the west.

It will not be on the -- able to replace the amount of capital that has been coming from the u.s. or europe.

It just cannot do that.

It will not do that.

It has other agenda items.

It will, for political reasons, positioning reasons, maybe try to help russia a little bit, but even the deal they worked out last month is fairly small potatoes in the whole scheme of things.


There are strict limits on what china can do.

The deal you are referring to is exporting natural gas to china, really just a fraction of what it exports to europe.

Over the longer term, if we see economic ties between russia and china, what does that mean for the global economy in terms of trade?

I do not know that it is necessarily bad for russia in the long haul to trade more with china than it has been.

The issue then becomes where does europe get its natural gas?

Does it get it from north america?

Does it get it by allowing fracking, if you will, the exploration of the show resources in europe -- i think europe will have to depend on other sources natural gas.

We were talking about other companies, and you said already it is unfavorable to do business in russia, but we have exxon, bp, profit-sharing, finance agreements there -- what happens when that unravels?

Will that unravel, i guess?

I think it will, probably, and you are absolutely right, alix, a number of companies will take a bit of a hit, although companies like exxon have operations in a lot of parts of the world, but they will take a hit as the sanctions tighten further.

I am not pretending that it will not hurt some companies.

It will.

But the bigger hit, the bigger hurdle will be on russia itself.

Thank you, nariman behravesh, for your perspective this

This text has been automatically generated. It may not be 100% accurate.


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