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Russia Braces for Impact from US Sanctions


Sigal Mandelker, U.S. Treasury Under Secretary for Terrorism and Financial Intelligence, tells the Senate Banking Committee, Aug. 21, 2018, that the administration was prepared to ratchet up sanctions against Russia.

New U.S. sanctions on Russia expected to be announced Wednesday, imposed under a chemical and biological warfare law following the poisoning of a former Russian agent and his daughter in Britain earlier this year, have taken effect – the latest chapter in what some are describing as a protracted war of attrition.

But Kremlin officials are less concerned about this week’s penalties and more agitated about a possible future slew of sanctions called for by a bipartisan group of U.S. senators.

This week’s round of sanctions, which includes a broad ban on technology exports to Russia, has been condemned by Russian officials.

Separately, the U.S. Treasury Department announced Tuesday sanctions on several Russian firms and individuals it accuses of violating bans on energy trade with North Korea and breaking U.S. laws against cooperation with Russia’s intelligence arm, the Federal Security Service.

Sigal Mandelker, a U.S. Treasury official, told the Senate Banking Committee Tuesday that the administration was prepared to ratchet up sanctions.

“Though Russia’s malign activities continue, we believe its adventurism undoubtedly has been checked by the knowledge that we can bring much more economic pain to bear,” said Mandelker. “We will not hesitate to do so if its conduct does not demonstrably and significantly change.”

Kremlin spokesman Dmitry Peskov told reporters on a conference call this week that the sanctions were unfriendly, illegal and warned they would harm world trade. But he stopped short of threatening retaliation, saying, “Let’s wait and see what will happen, if anything.”

According to Emily Ferris, an analyst at the Royal United Services Institute, a London think tank, the new sanctions will exacerbate “already difficult relationship between the U.S. and Russia. “ But she says the effect of them “is likely to be quite small” as America is not a main trading partner with Russia, whose business ties are much greater with the European Union, which is not joining in with these latest sanctions.

“Russia is likely to react by waiting to see whether America makes good on its promise to expand the sanctions, she said. “Russia usually responds with reciprocal measures. It is not willing to escalate into a trade war.”

Separate U.S. sanctions imposed in early April, punishment for what U.S. officials said was “worldwide malign activity” by the Russian government, lowered the value of the ruble, reducing the buying power of ordinary Russians traveling abroad or buying foreign goods.

The U.S. Department of State announced this week’s sanctions on Russia earlier in August, accusing the Kremlin of violating international law. Officials said they had established to their satisfaction that the Russian government was behind the poisoning in Britain of Sergei Skripal, a former Russian spy, and his daughter Yulia. Both were hospitalized and treated for a nerve-agent attack.

Yulia Skripal, who was poisoned in Salisbury along with her father, Russian spy Sergei Skripal, speaks to Reuters in London, Britain, May 23, 2018.
Yulia Skripal, who was poisoned in Salisbury along with her father, Russian spy Sergei Skripal, speaks to Reuters in London, Britain, May 23, 2018.

The White House is mandated to impose sanctions under a 1991 U.S. law on any country deemed to be responsible for a chemical or biological weapons attack. A second set of penalties — harsher than those in first round — will follow, according to the law, if Russia fails to agree within 90 days to cease all use of chemical weapons and allows inspectors to confirm their elimination.

The Kremlin has denied vehemently any involvement in the poisoning of the Skripals, and, analysts say, Russian President Vladimir Putin is highly unlikely to grant international inspectors any access to suspected chemical weapons sites.

The additional penalties the Trump administration could impose later in the year include the possible withdrawal of U.S. underwriting for international and U.S. bank loans to Russia, prohibition of landing rights in the U.S. for Russian airlines and even the suspension of diplomatic relations.

It is the possible second slew of sanctions — along with curbs envisaged in bipartisan legislation that, if enacted would target Russia’s energy and financial sectors and place sanctions on Russian sovereign debt — that are highly alarming to Moscow as they would have far greater impact on Russia’s economy.

Of the greatest concern, say Russian analysts, is a proposed ban on U.S. dollar operations for Russian state-owned banks included in a draft version of legislation sponsored by U.S. senators Lindsey Graham and Bob Menendez, which would force Russian banks to resort to intermediaries for foreign currency settlements. The proposals being pushed in the U.S. Senate would make it hard for Western investors to buy Russian government bonds and would reduce Russia’s ability to borrow abroad.

Russian officials appear focused on doing their best to inoculate the country — and government — as best they can from more stringent sanctions, or at least to lessen their impact. Putin’s economic advisor, Andrey Belousov, has called for the requisitioning of the profits of Russia’s metals and chemicals companies to help fund the government, prompting a clamor of disapproval from some government officials.

In July the Russian Duma approved a package of laws designed to help minimize the possible consequences of sanctions.

They included the establishment of two Russian tax havens in Kaliningrad Region and Primorsky Territory. Russian offshore companies can re-register in the Kremlin-controlled tax havens but keep their status as international companies, enjoy tax benefits and are exempt from currency controls. Corporate information about the ownership of these businesses is available only to Russia’s regulatory agencies and courts, making it harder for the U.S., or any other sanctioning foreign power, from being able to target Russia’s oligarchs and their companies.

Aside from taking defensive measures, Russia has a series of retaliatory actions it could take. But doing so would risk escalation and the retaliation wouldn’t impact the U.S. economy as a whole.

Among the measures Russian officials and lawmakers have suggested: placing restrictions on exports to the U.S. of titanium, which is used by Boeing for aircraft manufacture; imposing higher tariffs on U.S. cargo and passenger planes for transiting Russian airspace or banning U.S. carriers altogether; and stopping the supply of Russia’s RD-180 rocket engines used by NASA and the Pentagon to launch American satellites.

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