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Trump “not expected” to lift sanctions soon: Russia doesn’t care

On the eve of Donald Trump’s inauguration in Washington, the Russian government in Moscow has held a series of meetings to discuss economic questions.  The most important of these meetings was presided over by President Putin himself.

The purpose of the meetings is to assess Russia’s economic performance in 2016 – which turned out better than expected at the start of the year – and to assess prospects for the year ahead in light of Russia’s recovery.  However the meetings have also given the Russians an opportunity to set out their views on the sanctions issue, where there are widespread expectations in the West that Donald Trump is going to move rapidly to lift the sanctions the Obama administration has imposed on Russia.

The Russians do not share this view.  The crispest comment about the sanctions has been made by Russian Prime Minister Medvedev today

We shouldn’t kid ourselves, most likely [sanctions and oil prices] will stay as is in the near future.  We’re going base our actions on a conservative forecast.

The Russians are absolutely right to doubt that the sanctions will be lifted immediately.  As I have laboured to point out, Donald Trump is in no sense “the Siberian candidate” or the Kremlin’s stooge.  He is a tough businessman who approaches foreign policy in the same way that he does business: aiming always to get the best possible deal for the US.  The sanctions are a card for him to play in negotiating the deal he wants to get from the Russians.  He is not going to throw this card away in return for nothing.

That this is so widely misunderstood in the West is in some ways surprising since Trump has made his position on this question perfectly clear.  This is what he said for example in his recent interview with Bild-Zeitung and The London Times

They have sanctions on Russia — let’s see if we can make some good deals with Russia. For one thing, I think nuclear weapons should be way down and reduced very substantially, that’s part of it. But you do have sanctions and Russia’s hurting very badly right now because of sanctions, but I think something can happen that a lot of people are gonna benefit.

It speaks much for the hysteria that has surrounded Trump and his wish for better relations with Russia that this very clear statement of his views, which is entirely consistent with the transactional way Trump goes about things, is either ignored or misunderstood.

As is again entirely consistent with his approach to things, Trump has been very careful not to say publicly what sort of deal from the Russians he wants.  This is a standard negotiating tactic: keeping the other side unsure, so as to extract more and more concessions from them in return for the deal.  The above comment shows that Trump wants cuts to nuclear weapons, and it is a certainty that he probably also wants some sort of agreement for cooperation from Russia in the fight against ISIS.   Since Trump is a businessman it is a certainty that he will want trade concessions as well.

Trump may be over estimating the degree of leverage the sanctions give him.  His comment “Russia’s hurting very badly right now because of sanctions” suggests that he may not realise that their severest impact has passed, and that with Russia coming out of recession there is little domestic pressure in Russia to lift them.  Russia’s agricultural lobby welcomes the counter sanctions which come with the sanctions, which have driven EU food imports out of the Russian market, contributing to Russia’s agricultural boom, whilst the Russian government has using the financial sanctions as a lever to restructure the Russian financial system, a process which is ongoing and which is far from complete.  In the meantime Russia’s economy has successfully adjusted both to the sanctions and to the lower oil prices.

What is more important to the Russians is not that the existing sanctions are lifted, but that the threat of their being extended further is removed from the table.

As I have frequently pointed out, the only sanctions that really matter are the financial sanctions, which in 2014 cut off Western lending to certain specified Russian institutions.  The financial sanctions however actually target only a small number (albeit the largest and most important) of Russia’s financial institutions.  The great majority of Russian companies and banks are technically unaffected by the sanctions.  However in the months after the sanctions were imposed Western financial institutions ceased all lending to Russian companies and banks because of fears the sanctions might be extended to cover all of them.  If that threat is gone, then lending will resume (in fact it has already done so) though in a more controlled way, which is exactly how the Russian government wants it.

In other words, at the present stage in its economic development, it actually suits Russia for the sanctions to remain in place.  At some point Russia will want the sanctions lifted so that its biggest financial institutions – banks like Sberbank and VTB – can once again play a full role in the world economy.  However that moment is still some way off.  When people like Medvedev say they expect the sanctions to remain in place, the wish is actually the father to the thought.

In any event, the key point is that Trump is not saying he will lift the sanctions right away, and the Russians are not expecting him to, and as they have already made clear they are not holding an improvement in relations between Russia and the US hostage to Trump’s lifting the sanctions.

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