August 10, 2018 | The American Interest

The Noose Tightens on Moscow

Two new sanctions initiatives are about to hammer an already battered Russian economy. The first is the bipartisan congressional momentum this fall for new Russia sanctions legislation, and the second is the State Department’s announcement this week of sanctions related to a recent Russian chemical weapons attack. These punitive measures are not only warranted but necessary, as Russia’s conduct on a range of malign activities has not abated.

Russia’s economy is already struggling. The country’s GDP is still far below 2014 pre-Crimea invasion levels, the ruble sank to a two-year low this week, and outflow of capital from Russia increased by 20 percent in the first half of 2018. Thus, it is no surprise that Russia’s leadership is upset over the prospect of facing harsher economic measures in the coming months.

While the Trump and Obama Administrations have applied financially coercive measures on the Kremlin over the past four years, measures to change President Putin’s decision-making have not had the desired impact. That is why the Senate is now seriously considering moving forward with targeting Russia’s sovereign debt.

Such a move would not punish financial institutions that currently hold Russian debt (though they would devalue the debt held), but it would stop U.S. institutions from investing in new Russian debt. Putin has historically relied on these sorts of investments in particular to bail out key sectors of his economy.

By constricting Russia’s access to foreign investments, the Kremlin’s financial flexibility is hampered. Other important steps under consideration in the Senate include cyber sanctions, deeper energy sanctions, and various other measures to enhance our ability to counter Russia’s hybrid warfare.

This will build on previous congressional measures. The April 6 sanctions targeting Russian oligarchs had a significant impact on the Russian economy with billions lost amongst Putin’s inner circle and their companies. While some derided the wide scope of the initial oligarch report mandated by the Countering American Adversaries Through Sanctions Act (CAATSA), it has caused the type of fear and uncertainty in the Russian market that a more constrained list likely would not have caused. Merely being on the initial list has made many of Russia’s tycoons international pariahs. Further, the oligarch report that was delivered to Congress had a classified annex. Where appropriate, Congress could seek to have names in the annex be declassified and made public. Sowing uncertainty amongst Putin’s cronies should be a bipartisan goal.

In addition to these measures on Capital Hill, the State Department announced on Thursday its imposition of sanctions in response to Russia’s use of a nerve agent against former Russian spy Sergei Skripal and his daughter Yulia. The sanctions draw their authority from the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (CBW Act). The first round of sanctions are relatively mild; Russia won’t mind that the United States is prohibited from providing foreign assistance or selling them weapons.

But other measures are more severe. Russia will have 90 days to allow on-site inspections by the United Nations, and will need to provide reliable assurances that it will not conduct such attacks in the future and that it is no longer using chemical or biological weapons. Russia will almost certainly refuse, making it more likely that more onerous sanctions could be put into place.

Then, come November, the CBW Act calls on the President to choose three sanctions out of a list of six possibilities. This includes prohibitions on multilateral development bank assistance, prohibitions on U.S. bank loans, further restrictions on exports and imports, downgrading or suspension of diplomatic ties, and severing of ties with Russia’s state-owned airline Aeroflot. While there are certain cutouts and waiver authorities, if fully applied these sanctions would be unprecedented.

While Russia exports almost two-and-a-half times more to the United States than the United States exports to Russia, the impact of trade restrictions on certain industries such as aviation could be great. For instance, Boeing relies on Russia’s titanium producer, VSMPO-Avisma, which exports 70 percent of its products. When the Russian legislature (the Duma) proposed banning these exports earlier this year, VSMPO-Avisma revolted and warned that 20,000 Russian jobs would be in jeopardy. The Duma stood down.

U.S. exports of farm, pharmaceutical, and technology products to Russia would also likely be impacted. Severe trade restrictions would harm both nations, but for key sectors of Russia’s industrial base, the result could be catastrophic.

Meanwhile, Russia’s growing financial isolation has a political impact. Recent polls found that only 16 percent of Russians approved of Putin’s foreign policy, and Putin’s overall approval rating dropped to 67 percent. Prime Minister Medvedev’s approval rating has also dropped to a historic low of 31 percent.

Putin’s foreign policy is the reason Russia is in this predicament. Russia illegally invaded Ukraine and annexed Crimea. In Syria, Putin has aided and abetted every bit of the Assad regime’s atrocities, all the while letting Iranian forces entrench themselves further in the Levant.

The Kremlin also continues to help finance North Korea, and as a recent report shows, it is doing so in part by allowing new North Korean slave labor into Russia. Just last week, the U.S. Treasury Department designated a Russian bank facilitating transactions for the Kim regime.

Closer to home, the Kremlin has been engaged in “pervasive efforts to undermine our democracy,” according to DNI Director Coats, and continues to target everything from critical infrastructure to our election systems ahead of the midterms this fall.

As Putin’s expansionist foreign policy persists a decade on, the Trump Administration continues to increase the costs. When Secretary Pompeo testified before the Senate Foreign Relations Committee last month, he indicated that the Administration was supportive of sanctions measures that would target the Russian ruling elite and the economy at large.

The White House, along with a bipartisan group of legislators, are now on a path to not only increase Putin’s pain, but hopefully elicit a change in course.

Boris Zilberman is deputy director of congressional relations and Russia expert at the Foundation for Defense of Democracies. Follow him on Twitter @rolltidebmz.

Follow FDD on Twitter @FDD. FDD is a Washington-based, nonpartisan research institute focusing on national security and foreign policy.

Issues:

Russia