What sanctions might Russia face?

The Bell

What sanctions might Russia face?

The Navalny affair: what sanctions might Russia face?

Joe Biden’s possible election to the White House has, for months, been the main sanctions risk for Russia. But now there are at least two more: the protests in Belarus, where Moscow is President Alexander Lukashenko’s only ally, and the poisoning of Alexei Navalny.

This is our handy guide to all the different sanctions Russia could face this fall.

  • It is least likely sanctions will be imposed for backing Lukashenko: restrictions in such a case would only be possible in response to a Russian military intervention, according to experts. Thus far, Russia has carefully avoided anything of the sort.
  • Despite talk about hackers and trolls, Russian interference in the current U.S. elections appears not to be comparable to 2016. Experts said that, as Russia is not a major issue in the current campaign there is — so far — no reason to expect sanctions.
  • The main threat for Russia remains a Biden presidency. Biden would likely take a tougher stance on Russia and, by 2021, whoever sits in the Oval Office will have a new mechanism for imposing sanctions: the National Defense Administration Act 2021, expected to be passed by Congress in the coming months. This includes the DETER Act, tabled by senators Marco Rubio and Chris van Hollen, which has been waiting in the wings since 2018. If passed, it would sanction state-owned Russian banks and new energy projects, as well as a banning foreigners from purchasing Russian state debt.

However, the most likely round of sanctions will be as a result of the Navalny affair. In the West, it’s widely accepted Navalny was poisoned with Soviet toxin Novichok — and that the Russian secret services were involved. Legally, it’s relatively straightforward to impose sanctions for the use of a banned chemical weapon.

  • The U.S. would most likely impose sanctions under the Chemical and Biological Weapons Control and Warfare Elimination Act of 1991 (CBW Act). It was this that was used by Washington to impose sanctions on Russia in 2019 following the poisoning of former double agent Sergei Skripal in Britain. Earlier this month, members of the bipartisan Congress Committee for International Affairs urged the Trump administration to use the CBW Act against Russia in response to the Navalny poisoning.
  • The CBW Act gives the president six possible responses. In 2019, Trump selected three relatively lenient punishments: U.S. banks were banned from participating in initial issues of Russian foreign currency debt, the U.S. pledged not to support any proposals for IMF aid or loans to Russia, and there was a freeze on exports to Russia that could be used to make chemical or biological weapons.
  • This time, the response is likely to be tougher. It’s Russia’s second transgression in less than two years, and both Congress and public opinion will press the White House to double down, according to Ivan Timofeyev, program director of the Russian Council on International Affairs, a state-funded think tank. The White House could expand restrictions on purchase of Russian debt, introduce new bans on U.S. banks lending to Russian clients, or even ban all U.S. flights for Russia’s national carrier, Aeroflot. Sanctions under the CBW Act do not require approval from Congress, but the process can still be lengthy: the response to the Skripal affair took 8 months to implement.
  • The outlines of any EU sanctions are less clear. Russia’s most vulnerable spot is the almost-complete NordStream 2 gas pipeline under the Baltic Sea on which over $5 billion has been spent. Everything in relation to NordStream 2 depends on Germany which, thus far, has supported the project despite U.S. pressure. In April, the European Parliament called for the pipeline to be blocked, but the resolution was non-binding. In the days immediately after Navalny’s poisoning, Chancellor Angela Merkel insisted NordStream remained a different issue. But after it became clear Navalny was targeted with Novichok, she hardened her position, appearing to support German Foreign Minister Heiko Maas, who said Germany could suspend the project.
  • Whatever the fate of NordStream 2, some EU sanctions seem inevitable (even if they do require the unanimous agreement of all 27 member states). However, measures are likely to be limited to individuals involved in the poisoning, or benefitting from it. That’s no big deal for the Kremlin — almost all senior Russian officials are already sanctioned.
  • A much more meaningful response by the EU would be an asset freeze for individuals named as corrupt in Navalny’s investigations (the European Parliament called for this Thursday). This might include billionaire Alisher Usmanov, who spends much of his time in Munich, or former deputy prime minister Igor Shuvalov, who owns real estate in Austria. But the legal basis for such sanctions is shaky. If there is no clear definition why an individual is under sanctions, the European Court of Justice can lift restrictions in a single hearing, according to Sergey Glandin, an expert on sanctions law at Pen&Paper.

Why the world should care

The risks of fresh sanctions against Russia have risen significantly in recent weeks. The severity of any new restrictions is still unclear, but, either way, any new measures looks set to deepen Russia’s international isolation and cause economic damage.


State media spared Russia’s first budget cuts in 4 years

The government this week approved a downsized budget for the first time since 2016. In a bid to try and keep the economy afloat, more funds will be raised from business and the general public. Only one sector will be spared the almost universal belt-tightening: state-owned media outlets, which will get even more money than they did last year. 

  • After recording a surplus in 2019, the 2020 budget plans for a deficit of 4.4 percent. To achieve this, all outgoings that don’t have protected status will be cut by 10 percent (protected status covers social handouts and funds to service debt). The biggest surprise was an unprecedented 5 percent reduction in military spending. In total, the cuts in this budget add up to over $122 billion. 
  • But that’s not all. To recoup more than $50 billion lost due to the coronavirus, the government will also implement a “revenue mobilization” program. Bits of this have already been announced, and the principle seems to be ‘a little bit from everyone’. As part of this, the wealthy have seen their income tax rate rise from 13 percent to 15 percent; deposits worth over $13,200 will be taxed at 13 percent; there will be higher excise duties on cigarettes; and the chemical and metal industries will see big tax hikes.
  • All this illustrates the tax-and-spend thinking that lies behind Russia’s economic management: funds are collected from businesses and the public and given out to large projects (usually infrastructure building). The Bell spoke to one participant in the government’s economic discussions who said that the plan is to spend state money to stimulate economic growth. There seems to be no interest in entrepreneurship, nor any effort to encourage creative potential. 
  • Pretty much the only sector unaffected by the cuts is state-owned media, which will see its funding rise. The major winner is broadcaster RT with an additional 3 billion rubles ($40 million). In total, the official media budget in the 2020 budget is 73.8 billion rubles ($970 million); the true figure might be even bigger.

 Why the world should care

The structure of this year’s budget is deeply symbolic. The state has less cash to spend so it splashes on higher quality propaganda — to distract people from the economic woes.

How Lukashenko became an online meme 

This week Belarusian President Alexander Lukashenko visited Russia for the first time since rigged elections triggered huge opposition protests against his rule. During a four-hour meeting in the Black Sea resort of Sochi, President Vladimir Putin congratulated Lukashenko on his election victory and applauded his constitutional reform plans. He also announced that Russia would provide Belarus with a $1.5 billion loan (many in the Russian government grappling with a budget deficit and negative growth would really have preferred not to sign off on this). 

Thanks to Russia’s support, Lukashenko has sharply changed his rhetoric since the election. Before the vote, he repeatedly vowed only he could prevent Belarus from being absorbed into Russia (integration has been debated for 20 years and is a particularly sore point for Belarus). Amid the protests that followed the election, however, Lukashenko changed his tune, saying that “if Belarus collapses, Russia collapses” and referring to Putin as his “elder brother”. Few on social media could resist mocking the Sochi meeting, which became a source of endless memes ridiculing how Lukashenko fawned over Putin in the hope of getting money.

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