On August 1, 2019, the U.S. State and Treasury Departments announced Trump signed an executive order to impose additional sanctions on Russia. This is Trump’s second round of sanctions in response to increased congressional pressure to inflict greater punishment on Russia after they conducted a nerve agent attack in 2018 against a former Russian spy who Putin labeled a “traitor” and “scumbag.”
The sanctions target Russia’s economy and, according to analysts, have escalated tensions to be on par with the Cold War era. The executive order gives the Trump administration power to sanction countries that violate global chemical and biological weapons treaties, including the ability to prohibit U.S. financial institutions, like the World Bank, from lending to them. The official sanctions are as follows: “US opposition to loans or other assistance to Russia from international financial institutions (IFIs), such as the World Bank or the International Monetary Fund (IMF); a prohibition on U.S. banks (1) participating in the primary market for non-ruble denominated bonds issued by the Russian sovereign after August 26, 2019, and (2) lending non-ruble denominated funds to the Russian sovereign after August 26, 2019; and additional licensing restrictions on the export to Russia of US goods and technology on the Commerce Department-controlled list.”
The sanctions are drawn from the Chemical and Biological Weapons (CBW) Act. However, the State Department used waiver authorities to weaken the sanctions from those outlined in the Act – especially the banning of US bank loans to Russia, which will not apply to ruble transactions or to loans to state-owned enterprises.
The Trump administration imposed a first round of sanctions on Russia last year, after it concurred with the U.K.’s conclusion that Moscow was involved in exposing former Russian double agent, Sergei Skripal, and his daughter, Yulia, to a military-grade nerve agent, Novichok, in southwestern Britain. Additionally, the U.S. expelled 60 Russians from Moscow’s embassy. The administration stated that “more draconian” sanctions would be imposed in 90 days unless Russia gives “reliable assurances” that it will no longer use chemical weapons and allow inspections by the United Nations (UN). However, after 90 days there were no assurances and no signs of more sanctions. As a result, congressional pressure on Trump to impose additional sanctions continued to build until now, seven months later, when the administration decided to carry out its promise.
In response, Russian officials claimed they complied with the sanction’s campaign and that the U.S. political system is to blame. According to Russian Deputy Foreign Minister Sergei Ryabkov, “Sadly, the remnants of what was called the Russian-American partnership are now being sacrificed because of the demands of those who simply use relations with Russia as an instrument of domestic political struggle in the United States.” The lawmaker continued by shrugging off the potential consequences of the sanctions, claiming that the country is self-sufficient and this is not a significant threat to the economy. That being said, shortly after the Trump administration announced the sanctions, the Russian ruble plunged against the dollar and the country’s benchmark RTS stock index dipped 3 percent.
While the sanctions have potential to damage Russia’s economy, some economists say they will not have much of an impact since Russia has foreign currency and gold reserves exceeding $500 billion, preventing the need to borrow. In fact, the country’s dependence on U.S. loans is already waning. After sanctions were imposed following the Crimea annexation, Moscow’s U.S. bank loans fell from $45 billion in 2013 to $10 billion this year. On the other hand, the State Department claims that the sanctions will “restrict Russia’s access to the multilateral development bank system and…could curtail Russia’s access to billions of dollars of bilateral commercial activity within the United States.”
Prior to the executive order announcement, Trump faced criticism from lawmakers for delaying “legally mandated action” to follow up on the first round of sanctions. In November 2018, the administration was required to determine if Russia had given the assurances they were no longer using chemical weapons, or else the country would face more sanctions. While Russia never gave these assurances, a second round of sanctions were never imposed. To defend the delay, the Trump administration said the State Department was “consulting with Congress”. Congressional pressure increased last week when the House Foreign Affairs Committee’s top Democrat and Republican sent a letter to the president threatening congressional, “corrective”, action. To Congress’ relief, the second round of sanctions came this month, a day after Trump participated in a phone call with Vladimir Putin to discuss the wildfires currently ravaging through Russia.
As tensions between the U.S. and Russia continue to rise, the future relationship between the two powers remains unclear. While Trump invited Putin to a second summit in Washington last month, the governments are continuously at odds; choosing to be more confrontational than cooperative on seemingly every recent matter. Predictions about the U.S.-Russia relationship moving forward are pure speculation and will depend on domestic developments and international trends. Tensions could dissipate if one nation decides to take a backseat, or tensions could remain in the permanent state if neither country backs down from confrontation or competition.
Stay tuned on the IELR blog as more developments unravel.