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US to impose more sanctions on Russia for ‘supporting Assad’

US ambassadors Nikki Haley and John Huntsman confirm further sanctions on Russian companies to be announced Monday

Two US ambassadors – Nikki Haley, the US’s ambassador to the UN, and John Huntsman, the US’s ambassador to Russia – have confirmed that the US Treasury Department will be unveiling further sanctions on Russia tomorrow in retaliation for Russia’s continued support for President Assad.

Nikki Haley’s comments were made on CBS News’s “Face the Nation” programme.  The Washington Post quotes them as follows

You will see that Russian sanctions will be coming down.  [Treasury Secretary Steven Mnuchin] will be announcing those Monday, if he hasn’t already.  And they will go directly to any sort of companies that were dealing with equipment related to Assad and chemical weapons use. I think everyone is going to feel it at this point. I think everyone knows that we sent a strong message, and our hope is that they listen to it.

John Huntsman’s comments were contained in a letter to the Russian government, details of which were disclosed by a Russian government source to the Russian newspaper Kommersant.  Here is how Interfax reports them

Washington has warned Moscow of preparing new sanctions over Russia’s support for the regime of Bashar al-Assad, the Kommersant newspaper wrote, citing unnamed sources.

“One of these days U.S. Ambassador Jon Huntsman sent the Russian Foreign Ministry a letter saying that the U.S. authorities were preparing new sanctions against Russia. This time, simply ‘for the support’ for Syrian president Bashar al-Assad,” the article said.

The letter consisted of two parts, the paper said.

“In the second part of his message Jon Huntsman notifies Moscow that Washington intends to introduce new sanctions against time. This time, for supporting the Syrian regime,” the article said.

The first part of the letter “sets out the motivation behind the military operation against Syria launched by Americans and their allies,” the paper said.

“In the U.S. view, the Syrian authorities were responsible for the use of chemical weapons against their own people, and the international community must take steps to stop Bashar al-Assad,” Kommersant said.

Nikki Haley’s comments suggest that the US Treasury Department is once again looking at sanctions of Russian individuals and companies – especially companies involved in the defence sector – rather than further sectoral sanctions, which the US Treasury Department has previously ruled out.

That the US would follow up the missile strike by applying more economic pressure on Russia in order to try to force Russia to change its policy in Syria was in fact clearly hinted at by US President Trump in his speech on Friday announcing the missile strike on Syria

The combined American, British and French response to these atrocities will integrate all instruments of our national power: military, economic and diplomatic. We are prepared to sustain this response until the Syrian regime stops its use of prohibited chemical agents.

I also have a message tonight for the two governments most responsible for supporting, equipping and financing the criminal Assad regime.

To Iran and to Russia, I ask: What kind of a nation wants to be associated with the mass murder of innocent men, women and children? The nations of the world can be judged by the friends they keep.

No nation can succeed in the long run by promoting rogue states, brutal tyrants and murderous dictators. In 2013, President Putin and his government promised the world that they would guarantee the elimination of Syria’s chemical weapons. Assad’s recent attack and today’s response are the direct result of Russia’s failure to keep that promise.

Russia must decide if it will continue down this dark path or if it will join with civilized nations as a force for stability and peace. Hopefully, someday we’ll get along with Russia and maybe even Iran, but maybe not.

I will say this, the United States has a lot to offer with the greatest and most powerful economy in the history of the world.

(bold italics added)

The threat and the bribe are clear enough: the US will go on imposing sanctions on Russia if Russia continues to support President Assad’s government; but will provide Russia with massive economic assistance if it changes course (abandons its “dark path”).

These statements come on the eve of a UN Security Council session on Monday at which the US, Britain and France will propose a draft Resolution affirming that a chemical weapons attack took place in Douma on 7th April 2018 – something Russia and Syria categorically deny, and which the OPCW has not confirmed – and requiring President Assad to make “full disclosure” of his chemical weapons stocks – which both Russia and Syria say Syria no longer has.

Presumably the intention is to try to bully Russia to vote or abstain on this Resolution, and to impose sanctions if it vetoes it.

There is in fact no possibility that the sanctions – or the threat of sanctions, if they are postponed till after the vote on the Resolution – are going to make Russia change its position.  Russia’s deputy Foreign Minister Sergey Ryabkov has already reaffirmed that Russia has its “red lines” and intends to stick by them.

It is going to be very difficult for the Security Council member states to find a compromise on the Syrian resolution, Ryabkov warned. I don’t want to make assumptions on how the work will go on, but one has to understand that we have obvious ‘red lines.’ Probably, there are some kind of important ‘red lines’ for the Western group as well.”

“We’re going to evaluate the proposal of the Western troika with a critical eye. We don’t decide anything for ourselves in advance – if there are reasonable elements there, we’re going to work on them,” he said…..
The process of destruction [of Syrian chemical weapons in 2013-14] was carried out in close cooperation of the involved countries, including the US, and under strict international supervision,” Ryabkov said. “Therefore, I don’t understand the endless, primitive and unsubstantiated bogus stories, which are made up – sometimes by high-ranking US officials, that Russia didn’t fulfil its obligations.”

I will also here restate my repeatedly stated view that the Western Powers hugely misjudge the impact of sanctions on Russia.  As a self-sufficient continental economy with minimal debt levels, a balanced budget, big reserves, a surplus on the current account, and more than sufficient technology and capital to drive its own development, Russia not only can survive sanctions; it can actually thrive on them.

In my opinion some Western commentators have become altogether too excited because the immediate response to the sanctions the US imposed a week ago was a dip in the Russian stock market and a fall in the rouble, which however has since stabilised.

That there would be a panicked reaction on the part of certain Western investors to the latest round of sanctions was entirely unsurprising, especially as the Russian company most affected by the sanctions – Oleg Deripaska’s Rusal – is one of Russia’s companies which has most heavily integrated itself into the Western financial system.

Deripaska – most unwisely as things have turned out – starting from the mid-2000s was one of the most aggressive Russian business leaders in offshoring his businesses. 

Thus Rusal, though its corporate headquarters and the bulk of its production are in Russia, is actually incorporated in the British offshore tax haven of Jersey, and its shares are traded not just on the Moscow stock exchange but also internationally. 

This international profile, and Rusal’s repeated heavy borrowings in Western financial markets, has left Rusal intensely vulnerable to US sanctions.

Given Rusal’s size it was inevitable that any sanctions imposed on it would have a temporary impact.  However whatever happens to Rusal – and despite official denials nationalisation is a distinct possibility – for the reasons I have said, the Russian economy will adjust to it, just as it has successfully adjusted – as I also repeatedly predicted – to every round of sanctions that the West has imposed on it since 2014.

This also is true of any further sanctions the US and the Western powers are going to impose on Monday or later in connection with the Syrian crisis.

The same point was made about the latest sanctions by none other than Russia’s former Finance Minister Alexey Kudrin, who is someone who as a general rule never misses an opportunity to talk down the prospects of the Russian economy when he can

This (the current situation in the financial markets – TASS) will not affect strongly the economic growth. On the other hand, it will require the Central Bank to pay extra attention to inflation, so I think we should not wait for the Central Bank to cut the key rate in the nearest half-year.

Despite the exit of some foreign investors from the Russian stock market, nevertheless, we now have a high price for oil. In this respect I do not expect any serious new fluctuations. In addition, the weakened rouble helps Russian exports, and a number of industries are likely to earn. In general the balance will be quite good, it will not affect strongly the economic growth.

(bold italics added)

For what it’s worth my opinion is that the weakening of the rouble is an unalloyed blessing.  One of the malign consequences of the Central Bank’s policy of keeping real interests at 5% is that it has caused the rouble to strengthen more than it is in the Russian economy’s interests that it should.

A dip in the rouble will not only strengthen exports and deter imports, but at a time of rising oil prices it will also improve the Russian government’s budgetary position.

As for the effect of any rouble weakening on inflation, I expect it to be small and temporary – just as it was in 2016 – and with inflation currently at an annual rate of 2.4% as against the Central Bank’s target of 4% a brief rise in inflation is nothing to worry about.

For what it’s worth my opinion is that one of the reasons why economic growth last year was less than was expected was precisely because the rouble that year was encouraged to strengthen excessively, which had a negative effect on industrial growth.

As for the political effect of sanctions, President Putin’s landslide victory in the recent Russian Presidential elections shows that they have the opposite effect to the one the US and the Western Powers suppose they do.  Far from weakening President Putin’s political standing inside Russia, they are strengthening it.

The repeated failure of the West’s sanctions policy towards Russia seems however to have little or no effect on its advocates.  All the indications are that rather than reverse course its advocates in the West are doubling down on it.  In doing so they are doubling down on a policy which has repeatedly failed, and I expect it to go on doing so whether in relation to Russian policy towards Syria or anything else.

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