ISTANBUL, September 16. /ITAR-TASS/. Russian Economic Development Minister Alexey Ulyukayev said Tuesday he does not rule out a possible downgrade of Russia’s sovereign rating due to Western sanctions.

“This is quite possible,” Ulyukayev told journalists. “It [downgrade] may be connected with the sanctions regime or not. You just shouldn’t be too much guided by that.”

“Quite a while ago, the global community of regulators adopted a recommendation to regard ratings of the so-called international ratings agencies as certain optional assessments,” he said.

The economic development minister admitted that ratings agencies’ actions are significant for Russian borrowers. At the same time, he noted that in conditions when the global capital markets are almost closed for Russia, the possible rating downgrade rather has “moral meaning” than is “a tangible thing to be included in the business plan.”

Ratings agencies’ actions

International ratings agency Standard & Poor’s downgraded Russia’s sovereign credit rating to BBB-from BBB in late April, explaining the decision by capital outflows from the country in the first quarter of 2014 and reduced capabilities to attract funding on foreign financial markets.

“In our view, the tense geopolitical situation between Russia and Ukraine could see additional significant outflows of both foreign and domestic capital from the Russian economy and hence further undermine already weakening growth prospects,” S&P said then.

Later it was reported that the Fitch ratings agency could also downgrade Russia’s credit rating from BBB in case new international sanctions are imposed on Moscow, but this has not happened yet.

In late June, the Moody’s ratings agency affirmed Russia’s sovereign credit rating at Baa1, assigning it a negative outlook. The outlook downgrade from stable was due to “the rise in Russia's susceptibility to geopolitical event risk” and “a deterioration of Russia's medium-term economic growth outlook”.

EU, US sanctions

The latest batch of sectoral sanctions against Russia on the part of the European Union and the United States took effect September 12 despite the deal on a ceasefire, signed in Minsk a week before, between Kiev and the self-proclaimed Donetsk and Lugansk People’s republics (DPR and LPR) in the embattled southeast of Ukraine.

On September 12, the EU published in its Official Journal the details of new sanctions against Moscow taking effect the same day. The new punitive measures envision a ban for Russia’s largest state banks - Sberbank, VTB, VEB, Gazprombank and Rosselkhozbank to place bonds with maturity terms of over 30 days.

The penalties also stipulate a ban on debt financing for energy companies Rosneft, Transneft and Gazprom Neft and defense enterprises Uralvagonzavod, Oboronprom and the United Aircraft Corporation.

The US Department of the Treasury said September 12 the US government has imposed new sanctions on Russia. The new sanctions list includes Sberbank, Bank of Moscow, Gazprombank, Rosselkhozbank, Vnesheconombank, and VTB. Now they cannot borrow for a period of more than 30 days.

The Treasury has also blocked the assets of five defense enterprises and banned the export of goods, services and technologies for deepwater, Arctic and shale oil production projects carried out by Gazprom, Gazprom Neft, Lukoil, Surgutneftegaz and Rosneft. The Rostec corporation has also been affected and can now borrow for no longer than 30 days.

Russia came under Western punitive measures, originally visa bans and asset freezes, for incorporation of Crimea in mid-March after a coup in Ukraine in February. Later, Western claims that Russia is taking part in combat activities in southeast Ukraine, which Moscow has rejected, resulted in more serious, sectoral, restrictions.

Moscow’s response

In response, Moscow imposed on August 7 a one-year ban on imports of beef, pork, poultry, fish, cheeses, fruit, vegetables and dairy products from Australia, Canada, the EU, the United States and Norway.

Russia’s sanctions have already been taken into account by the European Commission, which has taken short-term market support measures worth over 155 million euros ($200.5 million) for the most immediately affected sectors: nectarines, peaches, vegetables, cheese and butter, the European Parliament reported Monday.

According to Russia’s Federal Customs Service, the overall imports of “banned” food from the countries Moscow imposed retaliatory penalties upon had totaled some $9.1 billion (7 billion euros) in 2013.