“These sanctions would not only have a significant impact on the Russian economy, but could also be disruptive to the global economy. However, Russia must know that further escalation will only isolate it further from the international community,” said U.S. President Barack Obama, announcing a new set of economic sanctions against Russia on March 20 in response to its annexation of Crimea.

The sanctions introduced by Washington include freezing U.S. assets and banning entry to the U.S. for a number of high-ranking Russian officials and heads of state companies, as well as several businessmen close to the Kremlin.

The only organization to be included on the sanctions list is Rossiya bank. The EU has adopted broadly similar sanctions.

In addition, Moscow has been punished with probable exclusion from the G8, suspension of trade and investment (by the U.S.) and visa (by the EU) negotiations and of military-technical cooperation.

Longer-term consequences

International business is united in its view that the situation around Ukraine is a major risk for any Russia-related operations. The reaction of the global financial markets may too be painful for Russia.

The rating agencies Moody’s and S&P have already downgraded their forecast for Russia’s credit ratings. Should the ratings themselves be downgraded, the price of borrowing on the external market will grow first for the state, then for its key financial institutions, like Sberbank, VTB and VEB, and then for all companies that borrow money in the West.

According to the Russian Central Bank, as of the start of 2014, nearly $215 billion of foreign debt was owed by Russian banks, and about $438 billion by companies. Over the next two years alone, banks must pay nearly $88 billion on their foreign obligations, and companies over $182 billion.

The government is now stocking up reserves in the event it will have to buy out strategic Russian companies’ obligations to foreigners: Similar measures were taken during the 2008-2009 crisis.

As a result of a further escalation of tension with the West, Russian companies may be denied access to global financial centers. For many years, most Russian companies conducted their IPOs on the London Stock Exchange (there are 53 Russian companies listed on the exchange’s Main Market with a total capitalization of nearly $500 billion) as well as the NYSE and NASDAQ in the United States.

Now many IPOs will be either canceled or postponed indefinitely. Yet another negative consequence is capital flight, which may reach up to $50 billion every quarter.

No less serious consequences may ensue from the EU’s aspiration to reduce its dependence on Russian oil and gas, which would allow it to pursue a tougher policy in relation to Moscow. However, given its current energy dependency on Russia, it is clear that Europe would not be able to stop buying Russian oil and gas overnight.

The main threat is the possible liberalization of LNG exports from the U.S.

Due east

In the meantime, it seems Moscow has already come up with a plan of how to cover its losses. In response to sanctions from the West, it should develop trade and economic ties with the East.

Asia could truly become a proper alternative to the European market for Russia, says Sergio Men, managing partner with Hong Kong-based investment boutique Eurasia Capital Partners. He points out that East and Southeast Asian countries are the fastest growing market for Russia’s key exports: oil and gas, metals, chemical products, food.

China has been, since 2009, Russia’s biggest trading partner ($89 billion in 2013). Furthermore, Beijing is ready to help its Russian partners. Despite the fact that China’s political reaction to the events in Crimea has been reserved, economically China is ready to render active assistance to Moscow in coping with possible sanctions.

As a possible insurance, Russia could strengthen cooperation with alternative partners South Korea and Japan, the latter of which is extremely concerned by China’s continued rise.

“Since the cabinet of Japan’s new Prime Minister Shinzo Abe came to power, Tokyo has been pinning much hope on cooperation with Russia. Its purpose is not only to develop Japanese companies’ business in the Russian Far East but also to help Russia avoid becoming just a raw material appendage to China,” said an expert consulting the Japanese government.

In order to promote relations with Russia and personally with Vladimir Putin, Abe became the only G7 leader to attend the Sochi Olympics. However, now Tokyo is coming under increasing pressure.

The U.S. has a serious geopolitical choice to make: either to continue putting pressure on Tokyo and Seoul in order to increase Moscow’s isolation or to allow its Asian partners to limit themselves to purely symbolic sanctions in order not to push Moscow into the arms of the Chinese comrades, having left Russia no other choice.