Top Russian government officials, lawmakers, finance and technology experts have portrayed U.S. sanctions unveiled this week as “meaningless,” “far-fetched” and “absolutely unprovoked.”
It’s great spin, but in fact all those characterizations are false.
On April 15, the U.S. Treasury Department announced a new round of Russian sanctions. These latest measure are aimed at punishing Russia for hacking into U.S. computers, interfering in U.S. elections, threatening Ukraine and purportedly paying bounties to kill U.S. troops in Afghanistan.
Apart from targeting 16 Russian finance, technology and intelligence entities and 16 individuals, the White House also granted the Treasury Department “sweeping authority” to respond to “aggressive and harmful activities by the Government of the Russian Federation.”
The sanctions, among other things, forbid U.S. financial institutions from lending to Russian state banks and ban commerce with a half-dozen Russian tech firms that work with Russian intelligence agencies. U.S. authorities blame Russia’s Foreign Intelligence Service, or SVR, for last year’s SolarWinds cyber intrusion, which penetrated nine U.S. government agencies and 100 private firms.
President Vladimir Putin’s spokesman Dmitry Peskov downplayed the economic harm of the latest sanctions, saying “macro-stability” would be ensured thanks to “the swift and ensured actions of our regulator.” Similarly, Konstantin Kosachev, vice-speaker of the Federation Council, the upper house of Russia’s parliament, said the sanctions were “baseless in essence, and from that senseless in form...”
Not exactly. The provisions targeting banks prohibit U.S. entities and individuals from owning or trading a variety of Russian government bonds, thereby restricting Russia’s ability to trade in foreign currency and potentially diminishing the value of the ruble. These measures will come into effect on June 14.
As of January 1, American individuals and entities owned about 6.9% of all Russia’s government bonds, a share worth about $12.8 billion, according to the Russian Central Bank. European and Asian investors hold most of the rest, Radio Free Europe/Radio Liberty (RFE/RL) reported.
The Russian economic news site RBC reported that the country’s economy responded preemptively and negatively to the sanctions. Foreign investments started shrinking as soon as the reports appeared in the U.S. media suggesting the sanctions were coming.
According to RBC, foreign investors began selling off their Russian shares in late March in anticipation of the new U.S. sanctions. By the end of last week, RBC reported, “the share of foreign investments in Russian federal loan bonds fell below 20% for the first time since August 2015.”
RFE/RL reported that Russia would reduce its planned 2021 government borrowing by about 25 percent in response to the sanctions.
The sanctions pose a potential obstacle to Russian state banks trading internationally and make it more difficult for the government to ensure economic stability and address deficits. “For now, bond markets seem not be too worried, but one big question is whether the US is able to get its Asian and European allies to impose similar restrictions, which would hurt Moscow more,” the financial news site GZERO reported.
The value of the Russian ruble dropped 2 percent after the sanctions were announced but partially recovered. Some economists told CNBC the impact would be limited but that the Russian central bank would likely raise interest rates later this year.