Bloomberg News

Sanctions Blowback in Russia Targets Burgers to Movies

April 14, 2014

Protesters in Moscow

Protesters hold up cardboard boxes with the portrait of U.S. President Barak Obama and a poster reading "Sanctions against Russia - Sanctions against Me", in Moscow, on March 28, 2014. Photographer: Ivan Sekretarev/AP Photo

It’s unlikely the U.S. president will be shopping on First Aeroportovskaya Street in Moscow anytime soon. Just in case, Magazin Myod, a small store selling honey and beeswax, has a sign on its door saying, “Sanctions: Barack Obama is prohibited from entering.”

With penalties imposed by the U.S. and Europe for Russia’s takeover of the Crimean peninsula starting to reverberate through the economy -- albeit in small ways -- the issue has become a focus of the national conversation.

“When I heard about the sanctions, I wanted to take a stand as a citizen,” said Vladimir Kulakov, 58, the owner of Magazin Myod -- which translates simply as Honey Store -- and president of Russia’s National Guild of Beekeepers. “Almost all my customers support this.”

Full coverage of the Crisis in Ukraine:

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  • Putin's 21-Year Quest to Be Russian Guardian Began in Estonia
  • Ukraine Tensions Escalate as Russia, U.S. Exchange Barbs

Like Kulakov, politicians and businesspeople are seizing on sanctions to score points with constituents and customers. One lawmaker has proposed barring Hollywood movies, a nationalist political party wants McDonald’s (MCD:US) shut down on health grounds, and storekeepers across Russia have posted signs similar to the one at Magazin Myod.

Tensions flared anew this weekend, with battles between Ukrainian security forces and pro-Russian gunmen in the eastern town of Slovyansk. One Ukrainian serviceman was killed and five were wounded, with an unknown number of dead on the separatist side. The U.S. and its allies are promising stiffer penalties if President Vladimir Putin makes further incursions into the country, while Russia says a Ukrainian crackdown on separatists in the east could spark a civil war.

The ruble declined to the lowest level in three weeks versus the central bank’s target basket of dollars and euros today. The Russian benchmark Micex Index fell as much as 1.9 percent.

No ATMs

Though the sanctions aren’t directly responsible, the most visible fallout from the conflict so far has been the slide in the Russian currency. The ruble has dropped more than 8 percent against the dollar this year, which has sparked inflation and threatens economic growth. On April 8, the International Monetary Fund cut its forecast for 2014 expansion in Russia to 1.3 percent from 2 percent. The Economy Ministry projected growth of as slow as 0.5 percent to 1.1 percent this year, down from a 2.5 percent estimate made in December.

Foreign companies that have said they are raising prices or have seen slowing sales include automakers Ford Motor Co. and Renault SA (RNO), dairy producer Arla Foods, and Swedish clothing chain Lindex (STCBV), which has 22 stores in Russia.

Intercepted Sneakers

Employees of Ren TV, a broadcaster owned by Yury Kovalchuk, a billionaire banker who is among the 31 people targeted by sanctions, face greater hassles. Staff members receive their salaries in accounts at Kovalchuk’s Bank Rossiya; After Visa and MasterCard stopped servicing Rossiya’s debit cards because of sanctions, Ren TV workers couldn’t use them in most shops or withdraw money from other banks’ ATMs.

Reporter Anastasia Pak says that after her card was denied when she tried to buy cigarettes, she got to the office and saw frustrated people standing around the ATM in the lobby.

“It had a sign saying, ‘Our ATMs will ALWAYS have cash,’ with another directly below it that said ‘Sorry, this ATM is out of cash,’” Pak said. “This is all very inconvenient.”

And a certain Sergei Ivanov from St. Petersburg was rebuffed when he tried to purchase a pair of $40 Reebok sneakers from 6pm.com, a division of Amazon.com (AMZN:US), to be delivered by a forwarding company called Shipito.

American Vagrants

Five days after Ivanov placed his order, the United States Postal Service notified him that the shoes couldn’t be shipped because he’s on the sanctions list. Sergei Ivanov, it turns out, is also the name of Putin’s chief of staff -– as well as thousands of other Russians since it’s the rough equivalent of, say, “John Smith” in the U.S.

Ivanov says he contacted Shipito and was told that if the package were addressed to another person it could be shipped. The Kremlin’s Ivanov wrote to the shoe-buyer with an apology for the trouble, which the latter posted online.

“It’s possible we’ll face such a farce again since Russia has thousands of Sergei Ivanovs,” the chief of staff wrote. On the bright side, he noted, “your case gives us a good example of how to bypass the U.S. sanctions.”

The USPS didn’t return calls seeking comment. 6pm.com said it couldn’t verify the transaction, but that it doesn’t ship overseas. Shipito said it follows the sanctions rules, and that if a consumer has the same name as someone on the list, the company will verify his identity before sending the package.

McDonald’s Picketing

With Russia’s media stirring up public opinion over the dispute, the limited effect of sanctions has done little to slow calls to punish U.S. companies. The nationalist Liberal-Democratic Party has organized pickets of McDonald’s outlets in 22 cities across Russia. In Yekaterinburg, activists paraded with signs saying “McDonald’s is food for American vagrants” and “Let’s harm the U.S., we’ll stop eating their mess.”

Vladimir Zhirinovsky, the party’s leader, has advocated banning the fast-food chain because he says its offerings are unhealthy. “We’ll close McDonald’s throughout the country and later we’ll deal with Pepsi-Cola,” Zhirinovsky told reporters on April 4.

McDonald’s Russia division declined to comment on the protests, but said its restaurants in the country are operating normally. The company’s Ukraine division on April 3 said it was suspending service at its three restaurants in the Crimea. PepsiCo Inc. declined to comment.

L.A. Aliens

Robert Shlegel finds American cultural fare similarly distasteful. The member of parliament from Putin’s United Russia party is proposing restrictions on Hollywood movies. Non-Russian films made up 81 percent of box office revenue last year, according to researcher Kinobusiness.com, and Shlegel wants to bring that down to half. Prime Minister Dmitry Medvedev has asked his government to consider higher taxes on foreign movies in a bid to shore up the domestic industry.

“We need to limit Hollywood’s monopoly,” Shlegel said by phone. “These movies propagandize U.S. values and a lot of them are low quality. Aliens invading Los Angeles, U.S. gays fighting prejudice, demolishing the Kremlin in Mission Impossible. There shouldn’t be a market for this in Russia.”

To contact the reporter on this story: Ilya Khrennikov in Moscow at ikhrennikov@bloomberg.net

To contact the editors responsible for this story: Celeste Perri at cperri@bloomberg.net David Rocks


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