U.S. President Joe Biden on April 15 imposed additional sanctions on Russia, targeting companies, individuals, and sovereign debt.
U.S. financial institutions are forbidden from buying government bonds issued by Russia’s central bank and sovereign wealth fund after June 14 on the primary market, designed to hurt Russia’s ability to borrow money in international markets.
The sanctions are seen as more symbolic than serious since U.S. financial institutions can still take part in secondary auctions. Nonetheless, going after Russia’s financial institutions is meant to serve as a warning that further Russian aggression will be met with severe U.S. sanctions.
Economic impact
The April 15 sanctions imposed via Biden’s executive order came in a bundle with a clear message– the U.S. can and will do more if deemed necessary.
“I was clear with President Vladimir Putin that we could have gone further, but I chose not to do so — I chose to be proportionate,” said Biden during his April 15 press briefing. “If Russia continues to interfere with our democracy, I’m prepared to take further actions to respond.”
A total of 46 Russian entities and individuals have been sanctioned directly, including 32 who are responsible for “carrying out Russian government-directed attempts to influence the 2020 U.S. presidential election, and other acts of disinformation and interference.” An additional eight are “associated with Russia’s ongoing occupation and repression in Crimea.”
According to the report, the European Union, the U.K., Australia, and Canada have joined these Crimean sanctions.
However, the main sanctions touched on Russian money. U.S companies are now banned from buying Russian debt directly from Russia’s government institutions.
This won’t have an immediate impact, since the secondary market is still open to U.S. companies.
In early April, Russia’s RBC business news outlet reported that foreign investors have been selling off Russian bonds in fear of new U.S. sanctions. Foreign presence in Russian debt dropped below 20%, the lowest in six years.
In March 2020, foreign investments into Russia’s debt peaked at 35%.
The markets shrugged. The Russian ruble, after an initial 2% fall, regained what it lost in the past 24 hours.
“The perception is they could have been much worse,” wrote Timothy Ash, a senior emerging markets sovereign strategist at BlueBay Asset Management. “I was not surprised that sanctions on ruble debt were included but was surprised that no major oligarchs – the friends and facilitators of Putin were included. Maybe the U.S. thought that sanctioning sovereign debt was a big enough move to keep sanctioning in reserve.”
Daniel Fried, a former U.S. diplomat and now a fellow at the Atlantic Council, wrote: “The hit against Russian sovereign debt issuance is not an economy buster, but its significance can bite over time. The package of sanctions seems designed to signal a willingness to escalate if Putin doesn’t find a way to back off.”
Further sanctions
“Now is the time to de-escalate,” said Biden, leaving the door open for Russia to back down. However, Russia isn’t looking to de-escalate, leaving the U.S. no choice but to impose additional sanctions to retain credibility.
In early March, the U.S. imposed sanctions against seven Russian officials concerning the poisoning of Russian opposition leader Alexey Navalny with the Novichok nerve agent.
The U.S. has also banned foreign assistance to Russia, military exports, and the ability for U.S. financial institutions to issue loans to Russian government agencies.
U.S. officials said intelligence had concluded that Moscow was behind the near-fatal nerve agent attack on Navalny last year. The sanctions were imposed through the U.S. Chemical and Biological Weapons Control and Warfare Elimination Act of 1991.
The act envisions that the U.S. must impose additional sanctions within three months if Russia “won’t allow on-site inspections by United Nations observers that government is not using chemical or biological weapons in violation of international law and is not using lethal chemical or biological weapons against its own nationals.”
Potential sanctions may include a ban on multilateral development bank assistance, bank loans, export and/or import restrictions, a cut in diplomatic ties, and a ban on flights to and from Russia.
The president must choose three options out of six. Some of these restrictions are already in place, meaning that the U.S. must raise the stakes.
The sanctions are expected in early June.
Additionally, Biden promised further action in case of Russia’s ongoing escalation.
“Where Russia seeks to violate the interests of the United States, we will respond. And we’ll always stand in defense of our country, our institutions, our people, and our allies,” said Biden, referring to Russia’s military build-up near the Ukrainian border and inside Ukraine’s occupied territories.
Moments before the press conference, Russia announced it was blocking Ukraine’s access to the Sea of Azov, cutting of Ukrainian port cities of Mariupol and Berdiansk from international waters. This violated both a 2003 treaty between Ukraine and Russia and the UN Convention on the Law of the Sea.
According to Swedish economist Anders Aslund, a fellow at the Atlantic Council, the imposed sanctions are “a tight check on Russia’s government financing.”
“The U.S kept great potential sanctions: Nord Stream 2, (Russian) oligarchs and Russian state financial companies,” he added on Twitter.
