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How Russia Can Deal With America's Secondary Sanctions

Problem is even companies from countries not sanctioning Russia refuse to do business there for fear they won't be able to do business with American entities


The key problem isn’t Washington DC’s direct sanctions – Russia’s trade with the US is small, any restrictions can be easily substituted for or retaliated against, while harsher measures would require an unrealistic degree of international cooperation to be effective.

As I have written, the main problem is American secondary sanctions:

1. The US market is an order of magnitude larger than Russia’s, so it is not only US corporations that will defer to Uncle Sam. This will also hold true for European corporations (most of Russia’s trade is still with Europe), for Chinese corporations (unless the CPC expressly orders them to flout US restrictions), and even for other Russian corporations (e.g. Russian state banking giant Sberbank still doesn’t have any branches in Crimea in what is probably a futile effort to avoid US sanctions).

2. The fact that the US continues to introduce even more severe sanctions against Russian companies – and we haven’t even gotten to the fallout over the Douma alleged chemical weapons attack – will make foreigners even warier of doing business in Russia than they already are, and raise the cost of business across the board.

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It appears that Russia is going to legislatively call America’s bluff in the following days. The proposed new laws, which enjoy support from the government and all the main political parties, will:

  1. Impose fines (~$10,000)/prison time (up to 4 years) on individuals and entities who support Western sanctions by refusing to do business with Russian citizens or entities on America’s SDN list.
  2. Impose fines (~$8,000)/prison time (up to 3 years) bans Russian citizens from directly promoting Western sanctions, such as “providing recommendations and sharing information.”

We are currently living in a strange, limbo-like situation where questioning the Crimea’s status as a part of Russia can be qualified as “separatism”, with several people getting prosecuted for doing so, while Sberbank – Russia’s largest, majority state-owned bank – refuses to open branches in the peninsula. With this legislation, Herman Gref’s lawyers – who say they cannot think of a scheme that will enable Sberbank to operate in Crimea without incurring sanctions – will now have to think harder.

As Egor Kholmogorov writes, Russia will now essentially be telling its “offshore patriots” to make a choice between Russia or the Washington Obkom.

Henceforth, there will be real costs associated with enforcing Uncle Sam’s Diktat on sovereign Russian territory.

I would also note perhaps an even more important element of the law is that it will soon force the US to clarify its intentions. If masses of Russian and even some heavily Russia-invested foreign companies start ignoring its secondary sanctions en masse, it will have to decide between turning a blind eye to them, or start serious moves to economically isolate it.

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In the former case, the credibility of US secondary sanctions will start collapsing, in addition annulling much of the costs of the risk-related costs of doing business in Russia. This will even have some spillover effects to other countries sanctioned by the US (you’re welcome, Iranians).

In the latter case, the US will have made Russia’s impending choice between capitulation and autarky for it, which would be politically more tolerable.

The timing also could not have been better, what with Washington DC’s secondary sanctions against Iran exciting unusually forthwith protests from Germany and France. Like Alexander Mercouris, I do expect the Europeans to fold, because the United States remains a much more important economic partner than Iran, and in any case the Baltics and Poland can be relied upon to scuttle any EU-wide initiative. Nonetheless, a line has to be drawn in the sand sooner rather than later, and now is as good a time to do it as any.

The second part of the law banning Russian citizens from promoting Western sanctions has elicited squeals of protest from the Russian opposition. These are entirely self-interested. They couldn’t care less when Russians go to jail on the flimsiest “hate” charges – indeed, the “nationalist” Navalny himself was instrumental in getting Tesak locked up under Article 282, and many liberals such as Ksenia Sobchak want to extend anti-free speech laws to also cover pro-Stalinist sentiment.

But boy do they fall into an apoplectic fit when one of their favorite activities – submitting lists of their domestic political enemies to the Washington Obkom for sanctioning – is on the verge of getting criminalized.

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Navalny helped the EU compile sanctions on the people who made Crimea’s return to Russia possible in 2014. A year later, he submitted a list of Russian bureaucrats he believed should be sanctioned to the FT, many of whom were indeed later sanctioned by the West. Also in 2015, professional oppositionists Mikhail Kasyanov and Vladimir Kara-Murza traveled to the US to lobby Congress into putting Russian journalists – “propagandists” – on a no entry list for insufficiently fawning coverage of Boris Nemtsov, a famous but politically irrelevant opposition politician who had been recently murdered in Moscow.

Now all these people will face criminal liability for such activities.

The best part is that there are already good precedents for that in the “city on the hill” that the liberals look up to and worship. There is a bipartisan consensus in the US to effectively do away with the First Amendment in order to… criminalize not just participation in, but the mere advocacy of BDS with respect to Israel. This even extends to illegalizing speech that promotes boycotts on goods and services produced by Israeli settlers in the West Bank.

Speaking for myself, I condemn all attempts to stifle free speech.

However, if some speech absolutely has to be stifled, it seems to me that Americans doing so for the benefit of Israel is sadder than Russians doing it for the benefit of Russia.

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PS. One more confirmation (if any are still needed) that Russia isn’t planning on folding is that the rumors spread by someone that the former liberal Finance Minister Alexey Kudrin was going to be appointed to a senior post in the Russian government have been completely discredited. He has instead been appointed to be head of the National Audit Office, which is perhaps more humiliating than ignoring him entirely.


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