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The Victor of the US-Russian Sanctions War Will Be Determined by Europe

These are Iran-level sanctions but they won't mean much unless the US intends and is successful in forcing the Europeans to go along as well

 NBC: Trump administration to hit Russia with new sanctions for Skripal poisoning:

The Trump administration is hitting Russia with new sanctions punishing President Vladimir Putin’s government for using a chemical weapon against an ex-spy in Britain, U.S. officials told NBC News Wednesday.

Secretary of State Mike Pompeo signed off on a determination that Russia violated international law by poisoning the former spy, Sergei Skripal, and his daughter in March, officials said, a decision that was announced Wednesday afternoon by State Department. …

The biggest impact from the initial sanctions is expected to come from a ban on granting licenses to export sensitive national security goods to Russia, which in the past have included items like electronic devices and components, along with test and calibration equipment for avionics. Prior to the sanctions, such exports were allowed on a case-by-case basis. …

A second, more painful round kicks in three months later unless Russia provides “reliable assurances” that it won’t use chemical weapons in the future and agrees to “on-site inspections” by the U.N. — conditions unlikely to be met. The second round of sanctions could include downgrading diplomatic relations, suspending state airline Aeroflot’s ability to fly to the U.S, and cutting off nearly all exports and imports.

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The sanctions are directly based on H.R.3409 – Chemical and Biological Weapons Control and Warfare Elimination Act of 1991.

Section 7 covers the sanctions that are to be imposed, which consist of initial sanctions, and further sanctions to be imposed after 90 days if there is no compliance on the country’s part.

Initial sanctions: Ban on foreign assistance, arms sales, denial of US credit, and exporting national security sensitive goods. (Most of this is already functionally in place with respect to Russia).

Further sanctions: Ban on multilateral bank assistance [e.g. IMF, World Bank, the EBRD, etc], ban on US bank loans, a near total export ban (except food and agricultural commodities) and import ban, downgrade or suspension of US diplomatic relations, revocation of landing rights to air carriers controlled by the government of the sanctioned country.

Reuters has a US State Department official saying that the sanctions would not apply to Aeroflot, which some commenters have qualified as backtracking. But I think that the official was merely talking of the initial sanctions.

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How does Russia go about removing the sanctions? The President will need to “certify” to Congress that the country in question: (1) Has made “reliable assurances”, and is not making preparations, to use chemical/biological weapons in violation of international law, or against its own citizens; (2) is willing to allow on-site inspections by UN observers to confirm the above; (3) is making restitutions to the victims of its chemical/biological weapons usage.

This would basically require Russia to admit guilt for the Skripal poisoning and subject itself to the inspections regimes that the US typically tries to force on “rogue states.” In other words, it is out of the question.

Moreover, even in the theoretical possibility that this goes through, it’s not like President Trump’s “certification” will be worth anything amidst the Russiagate hysteria.

Another possibility to avoid the near cessation of trade between the US and Russia is to have the President “waiver” the application of individual sanctions, if he can determine and certify to Congress that doing so is necessary for the national security interests of the US; or that there has been “a fundamental change in the leadership and policies” of the sanctioned country. In either case, the President needs to provide a report to Congress explaining his detailed rationale for the waiver, and listing steps the sanctioned country is taking to satisfy the “removal of sanctions” clause.

This isn’t near the end of it, though.

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* Meduza: Russian newspaper leaks draft text of U.S. Senate’s Defending American Security from Kremlin Aggression Act

The newspaper Kommersant has published a full draft of the proposed “Defending American Security from Kremlin Aggression Act,” which demands a U.S. investigation into Vladimir Putin’s personal wealth and whether Russia sponsors terrorism, and would impose a ban on U.S. citizens buying Russian sovereign debt, though the U.S. Treasury publicly opposed this idea in February, warning that it would disrupt the market broadly. Republican Senator Lindsey Graham, one of the initiative’s sponsors, says one of the draft legislation’s goals is to impose “crushing sanctions.”

[Sanctions to include:]

Banning the banks. The draft bill proposes banning Russia’s biggest state banks — Sberbank, VTB Bank, Gazprombank, Rosselkhozbank, Promsvyazbank, or Vnesheconombank — from operating inside the United States, which would effectively prevent these institutions from conducting dollar settlements.

Oil and gas. In the energy sector, the legislation would impose sanctions on investment in any projects by the Russian government or government-affiliated companies outside Russia worth more than $250 million. Businesses would also incur penalties for any participation (funding or supplying equipment or technology) in new oil projects inside Russia valued above $1 million.

Lists and research. If the bill is submitted in its current form and adopted, the U.S. president would have 180 days to begin implementing its provisions; within 60 days of adoption, the White House would need to provide a new list of Russian individuals suspected of cyber-attacks against the United States; the Treasury Department would have 180 days to update its “Kremlin list” of Russian state officials and oligarchs; the director of national intelligence would be tasked with completing a “detailed report on the personal net worth and assets” of Vladimir Putin and his family; and the State Department would have 90 days to determine whether Russia should be designated as a state sponsor of terrorism.

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A new Sanctions Office. In order to shore up the 2017 Countering America’s Adversaries Through Sanctions Act, the draft legislation would also create an “Office of Sanctions Coordination” within the State Department to coordinate work with the Treasury.

Here is the original Kommersant article: Комплекс мер по сдерживанию Дональда Трампа

Here is the text of the draft bill:https://www.kommersant.ru/docs/2018/_2018d140-Menendez-Russia-Sanctions-Bill.pdf

It contains many more interesting details.

(1) The bill’s sponsors, which include Lindsey Graham, Robert Menendez, and Ben Cardin, preface their text with a call for President Trump to demand Russia stop interference in US “democratic processes”, return Crimea to the Ukraine, stop supporting the separatists in East Ukraine, as well the “occupation and support of separatists” in the territories of Georgia and Moldova, and support for Bashar Assad, who continues to commit “war crimes.”

(2) They note that the general drift of the document is towards a consolidation of separate anti-Russian sanctions, from the “Ukrainian” to the “cyber” ones, into a “single mechanism.”

(3) Subject to a 2/3 vote in the Senate, the bill also includes a ban on financing “direct or indirect” steps, that have as their goal to support the attempts of “any US government official” to take the country out of NATO. Every 90 days, the US Secretary of State, in coordination with the Defense Minister, would be required to present a report to the relevant committees in Congress about “threats to NATO”, which would include attempts to weaken US commitments to the alliance. Considering Trump’s ambiguous feelings on NATO, this part is primarily aimed at Trump himself.

(4) There are calls to “pressure” Russia from interfering with UN and the OPCW attempts to investigate chemical weapons usage, as well as to “punish” Russia for producing and using chemical weapons. This directly syncs this sanctions bill to the previous one.

The report concludes that it’s not yet clear how to interpret this. In the worse case, it could be a “preliminary application” for a UN campaign to exclude Russia from the Security Council; alternatively, it could just be a “pragmatic” run-up to merely invoking great sanctions, as with Iran in 1983.

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I suppose we now also know why Russia has been selling Treasuries for the past three months, which plummeted from their typical level of $100 billion in March to just $15 billion from June (i.e. just enough to guarantee USD-denominated trade).

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For comparison, the last time such a drawback happened (but which only lasted three weeks) was in the immediate aftermath of Crimea.

The last time Russia pulled such a large sum out of the U.S. was just after the annexation of Crimea in 2014, when the central bank withdrew about $115 billion from the New York Fed, Reuters reported last year, citing two former Fed officials. Most of that money was returned a few weeks later, after it became clear that the scope of initial U.S. sanctions would be narrower than the Kremlin expected, according to the news service.

But I suppose this drawdown would now be permanent, since it is increasingly evident that Iran-tier sanctions on Russia are now on the horizon.

These sanctions are either going to steadily creep in – or rush in like a tsunami if there is a Blue Wave in 90 days, or if Trump was to be removed.

However, as I have pointed out, the ultimate ability of the US to directly punish Russia is limited; it has twice as many people as Iran, after all, and many times the economic output. Trade between Russia and the US is very limited.

Moreover, as I have pointed out, Russia has plenty of surprising ways to hurt the US as well. For instance, banning Aeroflot from flying to the US has a simple response – banning US air carriers from overflying North Eurasia, period. It can resurrect a bill – first raised this May, since sunken in the legislature – to impose fines and prison time on individuals and entities who support Western sanctions by refusing to do business with Russian citizens or entities on America’s SDN list. It can throw out the American-dominated copyrights regimen out of the window.

Some questions we should now be asking include:

1. Precisely how far is the US prepared to go? Cutting off its own trade with Russia is one thing – penalizing foreign companies that do business with Russia is something else. As Ben Aris notes, the US Treasury Department has been ratcheting back on its sanctions against Oleg Deripaska and Rusal, after the chaos it has caused in the international metals market. The ideological Russiagaters need to balance their PDS/TDS against the pecuniary practicalities of catering to finance and oil & gas interests and their lobbies.

2. To what extent will the EU join in, passively acquiesce to, or resist the US sanctions against Russia? The answer to this question will to a large extent determine precisely how deeply Russia falls into China’s orbit in the next couple of decades.

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