By Thomas Wright, Beth Reinhard, and Joseph Curl, with David Wainer
As President Donald Trump expressed concern that Russia interfered in the U.S. election, the U.S. Treasury Department hit Moscow with sanctions Tuesday that it said are “designed to cut off access to the U.S. financial system for officials and oligarchs associated with the senior leadership of the Russian government.” The move was one of the strongest yet, but it is difficult to identify its benefits and potentially significant pitfalls.
The Treasury’s use of sanctions on the leading member of a geopolitical alliance the U.S. wants to bolster seems especially odd. The allies’ commitment to cooperate in managing the Syrian civil war has been strained by their inability to prevent Russia’s support for the Syrian regime. Russia has benefited from substantial military assistance, including Russia’s defense of Syria and its supply of advanced S-300 anti-aircraft missile systems to the regime, as well as the retaliatory attack on Syrian air bases that Russia calls a violation of international law.
The Treasury’s sanctions apply not only to American citizens but also to Americans’ businesses that are in, or are of interest to, the administration’s list of officials, oligarchs, and central bankers. Russia will likely retaliate, but will also likely focus the diplomatic risk on the U.S. government itself — a potential sign of how seriously it is taking the threat.
The measures are broad and include seven senior Russian officials and 15 companies controlled by them. The sanctions will also affect companies listed on the U.S. stock exchange, including Sberbank of Russia, which has subsidiaries on the New York Stock Exchange and the London Stock Exchange. This is the first time Russian individuals and companies have been hit with sanctions designed specifically to target major American financial institutions, and the measures specifically name the owners of those companies.
The targeted companies and individuals included Russia’s biggest gas producer, Gazprombank; and Novatek, the dominant gas producer, and two major oil producers. In addition, the sanctions target the businesses of the energy minister and the central bank president. The treasury called the oligarchs’ and bankers’ companies “favored supporters of the Government of the Russian Federation.”
Much will depend on whether the companies can access U.S. capital markets in light of the sanctions. So far, only Gazprombank has been able to buy enough bonds to keep the security of its existing loans for now. Russian deputy prime minister Arkady Dvorkovich reportedly asked that “Gazprombank become an American company,” but this clearly would complicate Russia’s international relations.
The Treasury described the companies’ assets in the U.S. at more than $1 trillion. At today’s prices, that amounts to roughly half of total U.S. foreign exchange reserves. These potentially significant assets are now subject to secondary U.S. sanctions against foreign companies that need to keep their U.S. dollar assets safe.
On the other hand, there are risks from the U.S. measures also. The U.S. does not need to rely on forcing foreign financial institutions to bar access to the U.S. market to achieve its stated goal of “rollback” of Russian interference in U.S. elections. The Trump administration could take other steps, such as halting American and Russian sanctions in the energy and defense sectors that both countries consider vital to their national security. The Treasury cited the latter sanctions in its argument for the new sanctions, saying that they impose “a major deterrent effect on the Russian government.”
U.S. leverage over the energy and defense sectors is also important for broader economic reasons. Including business ownership as part of the targeted list reinforces a message about the determination of the U.S. to put them under sanction if Russia continues to acquire those assets. The sanctions target a country whose markets are seen as easily manipulated by financial manipulators. This attention is important for the U.S. as it builds its financial framework so that Russia faces new threats to its assets if Russian sanctions become damaging. But it also puts the burden of reducing Russia’s reliance on Western financial markets on Congress and the president, both of whom seem less inclined to increase the pressure on Russia than the Treasury would like.
Erik Nordstrom is a senior fellow at the Atlantic Council and U.S. senior counselor in the Belfer Center for Science and International Affairs.