US Sanctions effect : Mastercard and Visa stop service in Crimea

Keeping in line with the U.S sanctions, Mastercard and Visa stop services in Crimea

In accordance with the economic sanctions imposed on Russia by the United States, two of the world’s biggest financial entities – Mastercard and Visa have stopped all services in the annexed Crimea region of Russia. President Barack Obama had authorised the individual and sectoral sanctions against Crimea last week. The economic blockade includes ban on the export and import of goods, technology, and services, as well as new investment in the Crimean peninsula.

The United States action comes after Russia annexed the Crimean peninsula in March 2014.  Crimea has been a part of internationally recognised boundary of Ukraine and Europe and United States have supported the Ukrainian government’s demand for Russian troops to leave Crimea. The economic blockade of Crimea is part of that support to Ukraine government.

Hitting Russian economy

Tensions between the old cold war rivals have been on the edge ever since Russia annexed the Crimea peninsula from Ukraine. The entire saga started with rebellion in Ukraine when the then President Viktor Yanukovych,  decided to ditch an economic deal with the European Union in favour of a deal with its erstwhile protectorate, Russia. This lead to pro and anti Russia riots in Ukraine and as well as in Crimean peninsula

The statemate than culminated in a widespread rebellion in eastern Ukraine- especially the Crimean peninsula – which decided to leave Ukraine and join Russia. Russia seized the opportunity and captured the Crimean territory from Ukraine. Since then, Russia has been embattled with sanctions from western powers against its offensive against a weaker Ukraine.

Latest Sanctions

As said above, President Obama authorised the economic sanctions against Crimea last week. That makes it illegal US firms to operate or offer services in Crimea. Visa issued the following statement to TASS, the Russian government mouthpiece, regarding the closing of its services.

“According to the US sanctions imposed against Crimea on December 19, 2014, Visa currently cannot provide services and offer their products in the Crimea. This means that we can no longer issue or accept bank cards in Crimea, and service them in ATMs.” 

“As for the time period, these limitations will last until the sanctions are lifted from Crimea. At the moment it is unclear when this will happen; it will depend on the development of the political and diplomatic situation. VISA continues to follow closely the events and will provide you with the information as soon as it appears.”

The Central Bank of Russia has promptly responded by saying Crimea banks continue to operate as usual, the Central Bank of Russia commented to TASS,

“Russian credit institutions operating in the territory of the Republic of Crimea and the city of Sevastopol work as usual, including the opening of bank accounts, transferring funds, and deposits and withdrawals of funds.”

Consequences

As of 16th December, about 31 banks were operational in the Crimean region. This has caused concerns in the Russian economic ministry and Central bank over too much reliance on western financial institutions.  Thier fears were further aggravated when Visa and MasterCard temporarily stopped servicing clients of blacklisted Russian banks earlier this year in March. Since then the Central Bank and economic ministers have accelerated efforts to develop a self-sufficient and independent financial system in Russia. On Friday, the Central Bank of Russia launched its domestic alternative to the SWIFT global system for banking transactions.

However the latest round of sanctions are surely going to hit Russia pretty hard especially in face of the Rouble’s losing value and falling international crude prices. Russia has already had to bail out the one of the state banks from facing default and it has said that it will provide additional capital funding to the remaining two by March 2015.

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