United Sanctions of America: Russia

Russia has condemned the new US sanctions as the ‘theatre of the absurd’ and dubbed the US as an erratic and unpredictable international actor that had betrayed “constructive” talks between the two countries’.  

Background

The sanctions are in response to the poisoning by a nerve agent, Novichok of Mr Skripal and his daughter at their home in Salisbury, England, earlier this year. Skripal was a former Russian spy who worked as a double agent for British intelligence. He was imprisoned in Russia but was exchanged with Britain in a 2010 spy swap. The United Kingdom blamed Russia for the attack, resulting in the expulsion of 150 Russian diplomats from the U.K., the U.S. and other allies.

Analysis

Russia on Thursday sought to cast the US as an untrustworthy international actor that had betrayed positive talks between the two countries’ presidents, as a new round of sanctions from Washington triggered sharp falls in the currency and Moscow stock markets.

Russia’s currency, the ruble, fell to below 66 to the US dollar, a 4% slide from Wednesday morning that began with the leak of a separate draft sanctions bill that could see Russia named a state sponsor of terror.

Moscow Exchange’s benchmark dollar-denominated RTS index shed 3.5% in early trading to its lowest level since April, before recovering to be down 2.1%. The ruble-denominated MOEX index fell as much as 1.5% before making up most of those losses.

President Vladimir Putin’s spokesman, Dmitry Peskov, said the sanctions were “absolutely unlawful and don’t conform to international law”, as politicians vowed to respond with countermeasures, which could include bans on the exports of rockets or resources for manufacturing.

A member of the Duma’s foreign affairs committee, Leonid Slutsky, said Russia could block exports of RD-180 rocket engines to the US as a potential countermeasure, the RIA Novosti news agency reported.

The United States announced on Wednesday that it would impose restrictions on the export of sensitive technology to Russia because of its use of a nerve agent in the attempted murder of a former Russian spy and his daughter in Britain.

The State Department said the new sanctions would come into effect on 22nd August and would be followed by much more sweeping measures, such as suspending diplomatic relations and revoking Aeroflot landing rights, if Russia did not take “remedial” action within 90 days.

Moscow is not expected to agree to the response required by US legislation, which includes opening up Russian scientific and security facilities to international inspections to assess whether it is producing chemical and biological weapons in violation of international law.

Russian markets took the news poorly. Stocks in Aeroflot, the country’s national carrier, fell by 12% in trading before lunchtime on Thursday over concerns that its direct flights between Russia and the US could be halted entirely.

The new sanctions involve the export of a long list of equipment deemed to be sensitive on national security grounds, including gas turbine engines, integrated circuits, and calibration equipment used in avionics.

We are applying these sanctions against essentially all Russian state-owned or state-funded enterprises. That’s potentially a very great sweep of the Russian economy in terms of the potentially affected end users,” a senior official said. “It may be that something on the order of 70% of their economy and maybe 40% of their workforce falls within those enterprises.”

The official said the value of the affected exports could run to “hundreds of millions of dollars”.

The administration has signalled, however, that it intends to grant exemptions for foreign assistance, cooperation on space projects and aviation safety.

Counterpoint

The Russians believe that the sanctions are likely driven by the political climate, particularly pressures stemming from President Donald Trump's overtures in July at the Helsinki summit to Russian President Vladimir Putin.

A spokesman for the Russians,  Polyanskiy tweeted “The theater of absurd continues. No proofs, no clues, no logic, no presumption of innocence, just highly-likelies. Only one rule: blame everything on Russia, no matter how absurd and fake it is. Let us welcome the United Sanctions of America!"

Assessment

Our assessment is that Mr Putin’s entire track record shows that he will not back down under pressure. We believe that the sanctions are also intended to deter Russia from meddling in the upcoming midterm elections in November. We feel that the sanctions need to be also considered from both the geopolitical quagmire and superpower rivalry that exist in the Middle East from Syria to Iraq. We also believe that while Trump has acted deferentially towards the Russian leader in public, the harsh measures in the sanctions bill are largely regulated by a US law on the use of chemical weapons, and leave the Trump administration little room to manoeuvre.