Since the sanctions were slapped on Rusal and EN+ in April last year, several EM investors have called the move by the Office of Foreign Assets Control a mistake.
They said that the US must have misjudged and that they could not have foreseen the rocketing of aluminium prices which caused problems for Western manufacturers, or the anger from US bondholders.
Those bondholders were forced to dump the Rusal debt immediately, typically into the hands of Russian local accounts, which reaped the benefits of a rally from a cash price of 40 to nearly 90.
Those that criticise those April sanctions say that this whole exercise has been a US own goal. They argue that lifting of the sanctions is a tacit admission from the US government that they needed to undo the havoc that they wreaked. They laugh while pointing out that the sanctions easing hinges on sanctioned oligarch Oleg Deripaska selling his controlling stake of these companies to VTB, itself is a sanctioned entity.
But regardless of whether the US predicted how the last year would play out in the aluminium and Russian bond and equity markets, the move has been a success, on some criteria. Many investors at many large EM funds are now terrified of Russian debt.
A lifting of sanctions would usually be considered a universally good thing for a country’s credit markets.
But not every investor thinks this where Russia is concerned. Having had this happen once, without an improvement in relations between the US and Russia, international investors fear that similar sanctions could land again — and it will be impossible to predict where.
Those that fear more sanctions say that the US will not want to look soft on Russia, and the removal of sanctions on Rusal and EN+ simply makes a new target more likely, especially now there is a proven exit strategy for eventual removal of them.
That ongoing reticence of investors to buy more Russian debt and equity will continue to limit Russian access to the primary international markets in terms of size as well as price, even without a hard restriction being in place.
Russian debt is trading very tightly, but much of it is locally held, and it could be argued it would be trading even tighter if it were not for this spectre of sanctions.
The US may or may not have the appetite to roll out a similar round of sanctions again, and we will likely never know how much of the last year was modelled and expected.
But in terms of limiting Russia’s overall access to capital, these sanctions have worked in a way that no preceding round ever did.