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Investors Reported Fleeing Russia Amid Worries About New U.S. Sanctions

Sberbank Chief Executive Herman Gref
Sberbank Chief Executive Herman Gref

Many foreign investors appear to be using the last days of 2017 to pull money out of Russia amid concern that new U.S. sanctions next year may target Russian oligarchs and state corporations that are close to the Kremlin, media reported on December 26.

The year-end market move away from Russia appears to be reversing a surge of foreign investment that occurred at the beginning of 2017, when investors anticipated a thawing of U.S.-Russian relations under the administration of U.S. President Donald Trump, the Russian business daily Kommersant reported.

Kommersant said that the prominent Wall Street firm Bank of America Merrill Lynch expects Russia to experience an overall drop of nearly $1 billion in foreign investment in 2017 as a result of the year-end exodus.

The Wall Street firm said U.S. sanctions loom as a potential "black swan" event for the Russian economy in 2018, meaning that they have a small chance of triggering a potentially disastrous exodus from Russian markets like the one that caused a 30 percent drop of the Russian ruble in just 10 days in December 2014, The Moscow Times reported.

Herman Gref, the chief executive of Sberbank, told The Financial Times that he thinks there is little chance the United States will impose strict sanctions on Russian oligarchs and state-owned corporations under legislation Trump signed into law last summer.

But if such sanctions are imposed, he said, it will "make the Cold War look like child's play," Gref told The Financial Times on December 24.

The most devastating new sanctions possible would exclude Russian banks from the international Swift electronic payment system, The Financial Times said, a move it described as a "nuclear option" that Western countries have been hesitant to use since first imposing sanctions on Russia over its aggression in Ukraine in 2014.

Based on reporting by Kommersant, The Moscow Times, and The Financial Times