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By John Helmer, Moscow

In the New York and London markets brokers and bankers explain that they are being discreetly called by US Treasury officials with this message: buying Russian equity or debt paper is legal, but in the event there is a new round of sanctions, it will be illegal to re-sell them, so there can be no profit in Russian assets. The market is calling this campaign “stealth sanctions”. It is an attack on the international market for Russian corporations, and on the international currency and security clearance systems on which the market depends.

According to the highest UK and European courts — reported here on March 25 — the type of formal sanctions which the US and the EU have already introduced are likely to be found illegal, if they are challenged in court. Stealth sanctions are more difficult to substantiate in court -– and also financially much more damaging. Until now, there has been no Russian retaliation for the sanctions, and no litigation.

Yesterday, Igor Sechin, chief executive of Rosneft, said in a television interview with a New York network: “The sanctions have been discussed a lot and I would like us to abstain from this discussion because the more we talk about the sanctions, the more important they seem. I am trying to put myself in the shoes of those people who introduce sanctions and I believe that there should be some purpose of the sanctions and some justification of them.” The mention of purpose and justification is also a discreet reference to the court judgements in London and Strasbourg.

“I cannot understand any justification or basis for taking the sanctions. I don’t think that my active cooperation with the American companies that is aimed at ensuring mutual profit could be a basis for sanctions…serious people should not take any serious decisions under pressure.”

sechin_tv_interviewThe American interviewer missed the hint; he didn’t know of the court judgements against sanctions. He repeated his question. “Do you fear that your cooperation with American companies will be threatened by a next round of sanctions, which has been talked about it will affect technology and the energy sector and it would hurt your relationships with your American partners?” Sechin (above left) replied: “When I started answering your question on sanctions I said it would be better for us not to discuss this issue. Now you are trying to develop this topic. By doing this, you are trying to give more significance to the sanctions.”

The interviewer missed altogether the significance of Sechin’s warning, as he went on.

“There’s another principle that seems very important to us, and that requires the attention from the entire oil industry and this is the guarantee of honouring the contractual obligations by all parties. We think this is a critical thing and especially now because the political risks are aggravating this year. We think that the power industry, as well as the food industry, are so sensitive that taking some political decisions and sanctions with regard to these particular industries are counter-productive and they are incurring significant damage to both consumers and producers. And therefore we suggested to our colleagues that we should include various political sanctions among force majeure. Because previously the force majeure circumstances did not include potential political sanctions. And it is very important because it would give the company a tool not to write off the money as losses.”

That is the first official Russian warning that if the US keeps up the sanctions pressure, major Russian corporations will retaliate. Sechin’s spokesman at Rosneft declines to say whether Rosneft is prepared to go into international court to attack the legality of US sanctions, and seek injunctions, as well as the threat of damages, for those who accept the US Treasury demands outside US jurisdiction.

Sechin’s warning contains a threat that is more immediate and direct than litigation. It’s a price hike for buyers of Rosneft oil, and for the banks preparing to refinance $20 billion in Rosneft debt. Since Sechin says he is already writing into Rosneft contracts an expanded proviso for force majeure, he is proposing to add a premium for US Treasury risk into Rosneft’s pricing. That’s what is meant by “a tool not to write off the money as losses.”

The US attempt to exercise jurisdiction beyond its borders was also, discreetly, slapped down. “There’s another thing that requires discussion, this is the improvement of the arbitration system. And because if the country where the arbitration court is located during the political sanctions, it is not likely that the arbitration would be objective. And so the special attention to fulfil a contractual obligation is a key to the operations of the oil industry. Because I should mention that the investment cycles in the oil industry are much longer than election cycles. And this determines our responsibility. And in any case, we need to ensure the fulfilment of contractual applications. And I think that this is a key thing and our colleagues understand it. And the forum once again proved the high level of trust that high corporate culture and the existence of what I would call, a corporate club.”

Sechin’s carefully prepared warning slipped past CNBC’s grasp. It hasn’t been detected by the Wall Street Journal, Bloomberg, or the Financial Times – all of them editorially backing the sanctions campaign. An international company source observes that Sechin’s declaration of force majeure hasn’t escaped the attention of the US oil majors. “He’s putting Exxon under pressure,” the source said. “We will try to demonstrate our efficiency in our activities,” Sechin added, “including the work of American companies. In my opinion, this is the only option of good response to this type of actions.”

An international banker warns that the US stealth sanctions over Ukraine are now doing damage globally, and not just to Russian corporate targets. “The extension of jurisdiction to other countries, the threats, the whispering – all these things are adding sharply to the cost of trade risk and of bank financing for trade everywhere, as well as corporate refinancing. The US Treasury is signalling the beginning of the end of globalization.”

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