The U.S. announcement of new sanctions against Moscow over its alleged use of a chemical weapon against a Russian ex-spy has roiled global markets and helped send the Russian ruble, bonds, and stocks plummeting.
The Russian currency dropped 3.1 percent to 65.55 per dollar, the lowest level since November 2016, after the announcement late on August 8, and the currency's downward spiral continued in Asian trading early on August 9.
Russia's RTS stock index lost nearly 3 percent of its value, while at a bond auction on August 8 the Russian government was only able to sell half the amount it had planned as borrowing costs jumped to the highest level in more than a year.
The ruble and Russian stocks and bonds had already been hit by a Russian media report providing details of "crushing sanctions" that some legislators in Washington have proposed over Moscow's alleged meddling in U.S. elections.
The legislation includes a provision to sanction Russia's sovereign debt -- a move that could pack a major blow to Russia's economy but which financial analysts said is unlikely to pass the U.S. Congress or be signed into law by President Donald Trump.
"Sanctioning sovereign debt will be a last resort. Corporate debt and individuals are a more likely target" in any new round of sanctions against Russia considered by Congress, Shamaila Khan, a director of emerging-market debt at AllianceBernstein, told Bloomberg.
Markets were so unsettled by the details in the U.S. legislative proposal that the Russian Finance Ministry on August 8 sought to allay market fears with a statement saying the measure might not be enacted into law, Russian news agency Ria-Novosti reported.
U.S. officials said the sanctions over Russia's alleged chemical weapons use will take effect on August 22, barring sales of sensitive technologies to Russia.
A second round of broader sanctions could be imposed later if Russia fails to allow international inspectors into the country to determine whether it has chemical or biological weapons.
Analysts said global investors are worried not only about a possible U.S. ban on Russia's sovereign debt, but a provision of the congressional bill that would clamp down on Russian banks, which they said could also seriously stifle Russia's economy.
“If you start crushing Russia by causing the banking system to collapse as a result of sanctions, it could actually lead to worse political outcomes than what you have right now,” Khan told Bloomberg.
He said investors learned not to take the threat of U.S. sanctions lightly after penalties introduced in April against Russian billionaires with connections to the Kremlin sent global markets into a nosedive.