Washington publishes bizarre ‘non-sanctions’ list, leaving some off

Six months after President Trump very grudgingly signed into law a bipartisan bill voted for overwhelmingly seeking sanctions against US ‘enemies’ such as Russia and Iran, the Trump administration, as it was legally mandated to do, has produced its ‘name and shame’ list of prominent Russians.

The best thing that can be said about the list is that it is bizarre.  The senior Russian government officials named in the list appear to have been indiscriminately chosen because they appear in the Kremlin’s and the Russian government’s directories of prominent officials.  As for the wealthy individuals in the list, it seems that they have simply been transplanted onto the list from Forbes.

Some attempt does seem to have been made to keep certain Russian officials of actual or reputed pro-Western views off the list.  Russia’s Central Bank Chair Elvira Nabiullina is not on the list, and nor is the liberal former Finance Minister Alexey Kudrin.  Unsurprisingly, neither is Anatoly Chubais, the ultra liberal Yeltsin official who masterminded Russia’s disastrous and hugely corrupt privatisation drive in the 1990s.

All I would say about the exclusion of Nabiullina and Kudrin from the list is that irrespective of their views both are currently loyal to Putin, and their exclusion from the list will cause them nothing but trouble in Russia.

As for Chubais, any list genuinely intended to ‘name and shame’ individuals responsible for creating corruption in Russia should certainly include him.  Arguably no other single individual bears a heavier weight of responsibility for the explosion of corruption which took place in Russia than him.

Not all prominent people in Russia who might be broadly described as pro-Western liberals have however managed to avoid inclusion in the list.

German Gref, Russia’s liberal former Economics Minister and close ally of Alexey Kudrin, who is now Chair of Sberbank, is included in the list.  Presumably he is there because Sberbank – Russia’s biggest bank – forms such an essential part of Russia’s financial architecture.

Sberbank by the way is one of the state owned Russian banks which were targeted by the sectoral sanctions imposed on Russia by the US and the EU in July 2014.  Far from being hurt by the sanctions it is now in rude health.

As for the other wealthy Russians in the list, it seems that anyone in Russia who is or is reputed to be a billionaire is automatically included.  These seems to be the case irrespective of whether they are pro-Putin or not.

Putin himself – much to his chagrin – is not on the list.  It is not clear why.

To say that publication of the list has been an anti-climax would be an understatement.  After months of speculation about what new ferocious sanctions the US was about to impose on Russia and on the people named in the list, it is not an exaggeration to say that a mountain has moved and produced a mouse.

Some Democratic Congressmen were unable to hide their anger, and in testimony before the Senate Banking Committee US Treasury Secretary Steven Mnuchin tried to appease them by assuring them that more sanctions against Russia were indeed on the way.  Whether however they will ever come and how severe they will be if they do is however another matter.

Alongside the ‘name and shame’ list but attracting far less publicity was a classified report the US Treasury Department provided to Congress which was described by Bloomberg in this way

An accompanying report on the effect on Russia’s sovereign debt from possible U.S. sanctions was classified, Senator Bob Corker confirmed in a statement on Tuesday. Congress had requested an unclassified version of the report.

The fact that this report was classified shows the sensitivity and legal difficulty of action against the sovereign debt of Russia, one of the world’s leading economic powers.

It is known that some Democratic Congressmen have been lobbying for action against Russia’s sovereign debt.  As I discussed recently, in practical terms that means action to stop US investors buying Russian sovereign bonds.  As I also discussed recently, that would be unlikely to deter other foreign investors, and given the current state of the Russian economy it would have only a limited effect anyway.

The fact that this report is classified suggests that the Treasury Department and the Federal Reserve Board are advising against it.

It is clear that other wilder proposals to seize Russia’s financial reserves in the US or to disconnect Russian banks from the SWIFT interbank payment system have been dropped.

Why after all the threats and bluster has the US come up with so little?

It is possible that at a certain level President Trump’s well known wish for better relations with Russia has had a certain influence.  However the problem for the US is that ultimately Russia is simply not vulnerable to sanctions.  I discussed this recently in an article for RussiaFeed

Summary

What all these proposals have in common is that they highlight is the simple fact that the sectoral sanctions which were imposed by the West on Russia in 2014 have failed.

The sanctions did not break the Russian economy, or cause a popular revolution in Russia, or lead to an oligarchs’ coup against Putin – all things their advocates variously predicted would happen because of them.

Nor have they achieved their stated purpose, which is to force Russia to change its policies towards Ukraine….

The key point is that the Russian economy is many orders of magnitude bigger and more sophisticated than the sort of economies – such as those of Cuba, Iran, Iraq, Libya, North Korea and Venezuela – upon which the US has imposed sanctions previously.  Applying the supposed lessons of the impact of sanctions on those economies in the case of Russia makes no sense, even if those lessons had been learnt correctly, which they have not. Unlike all those economies Russia’s economy is far bigger, already possessing the technology, capital and resources it needs to develop autonomously.

As a self-sufficient continental economy sanctions on Russia almost by definition can have only a limited impact, and one which over time must diminish anyway.

As it happens the most effective sanctions the West could have imposed on Russia, both in terms of their impact on the Russian economy and their limited impact on the economies of the West, were the sectoral sanctions which were imposed in 2014.

Those sanctions did stop for a time the flow of capital from the West into Russia at a time when Russia was facing heavy debt repayments and when the price of its main export products – oil and gas – was collapsing.  The result was to deepen the recession caused by the collapse of oil and gas prices whilst further lowering the value of the rouble in a way which intensified the inflation spike.

With oil prices now rising, most short term Russian foreign debt repaid, and with the rouble floating, none of the sanctions discussed in this article look like they can have anything like the impact on Russia that the sanctions imposed in 2014 did.

The fact that the Russian economy successfully – in fact almost effortlessly – adjusted to those sanctions despite the difficult conditions ought to serve as a warning that further sanctions against Russia will not work, and…..are counter-productive.

As for the idea that slapping sanctions on wealthy Russians will provoke them into launching a coup against President Putin, to anyone genuinely familiar with the situation in Russia the idea is absurd.

What putting the names of such people on a ‘name and shame’ list and threatening them with sanctions is far more likely to do is get them finally to heed President Putin’s call to repatriate their money from abroad.

President Putin has been pushing hard for this ever since the first round of sanctions was imposed on Russia back in 2014.

Wealthy Russians and the Russian business community in general have however proved to deaf to these calls, presumably calculating that they would be exempted from Western sanctions which were intended to target only those people close to the Kremlin.

Now that they know that anyone listed in Forbes is a likely target they may finally reconsider.  That at least is what the Financial Times seems to think

The threat of further sanctions may inadvertently help the Kremlin achieve the long-elusive goal of getting oligarchs to repatriate capital stashed in the west: the finance ministry is preparing to issue a $3bn bond on discounted terms for Russia’s top businessmen. “Everyone is thinking long and hard about it,” says a former member of Mr Putin’s cabinet.

A sanctions policy that actually advances President Putin’s objectives makes little sense.  It is strange that no one in Washington seems to realise it.