Conflict & Justice

New sanctions are driving Russians to drink


Russia's Bank Rossiya is on the US government's new sanctions list.


Olga Maltseva

Russians have a new reason to hoist a glass these days: According to a popular Russian post on Twitter, the toast du jour is “To US sanctions!”

It’s not clear whether the imbibing is due to joy or despair, but the latest round of punitive measures against Russia announced by President Barack Obama on Thursday packs a wallop.

The new sanctions add 20 individuals and one bank to the 11 already on a US blacklist. The people face travel bans and asset freezes. The bank will be unable to do business with any US firms or individuals.

The measures target President Vladimir Putin’s inner circle, with the threat of more to come. Obama indicated he’s prepared to target key sectors of the Russian economy in retaliation for Russia’s annexation of Crimea, which Putin signed into law Friday.

“Russia must know that further escalation will only isolate it further from the international community,” the US president said.

The new sanctions certainly increase the tension between Moscow and Washington; it’s not yet clear whether they will do anything to move Russia out of Crimea or curb the Kremlin’s expansionist ambitions.

But the market is already reacting: Standard & Poor’s and Fitch credit rating agencies promptly downgraded the outlook for Russian sovereign debt from stable to negative, and Russian stock indexes plummeted in early trading on Friday.

Russian news agency RIA Novosti reported on Friday that Visa and MasterCard have stopped processing transactions for cardholders at certain Russian banks, including Bank Rossiya, the institution named in the US sanctions list.

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Moscow responded swiftly, imposing corresponding sanctions on nine US officials, including Arizona Sen. John McCain, Senate Majority Leader Harry Reid and Speaker of the House John Boehner.

The Russian measure was greeted with humor by some.

“I guess this means my spring break in Siberia is off,” McCain said in a statement Thursday. “My Gazprom stock is lost, and my secret bank account in Moscow is frozen. Nonetheless, I will never cease my efforts on behalf of the freedom, independence, and territorial integrity of Ukraine, including Crimea.”

But Moscow isn’t laughing. Russia’s Foreign Ministry released a strongly worded statement saying that it was prepared to retaliate tit for tat.

“We have warned on numerous occasions that sanctions are a double-edged sword, and would come back like a boomerang to hit the United States,” read a statement released on the Foreign Ministry’s website. “Using this kind of language to speak with us is inappropriate and counterproductive, as those in Washington have had ample opportunity to observe.”

The United States does not do a great deal of trade with Russia — just $11 billion in exports and $27 billion in imports in 2013, which leaves Russia outside America’s top 20 list of trading partners.

Still, the portfolio of US companies with business interest there includes many of the world’s biggest corporations, which are watching the punitive actions closely. Some of them are lobbying for Washington to take a circumspect approach and avoid whacking too hard against what they consider the economic drivers that are modernizing Russia, the Financial Times reported. Until Thursday's sanctions, however, critics had been prodding the Obama administration, saying the US approach wasn't tough enough.

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Europe’s economy, meanwhile, is more closely entwined with Russia’s.

Countries such as Germany and Italy are highly dependent on Russian gas, getting more 30 percent of their supply from Moscow. London banks hold vast amounts of Russian assets — up to $400 billion, according to some estimates. France has a more than $1 billion deal to sell warships to the Russian fleet.

That might explain why the EU is proceeding cautiously. At a summit meeting on Thursday, EU leaders said they would add 12 individuals to their original list of 21 Russians to be sanctioned, but as yet have released no names.

Moscow has some arrows in its quiver that are not specifically economic. It’s been cooperating with the US and allies on issues such as negotiations over Iran’s nuclear program and the destruction of Syria’s chemical weapons stocks.

On Wednesday a top Russian diplomat threatened that Russia could change its stance on Iran if the standoff over Crimea continued.

Moscow and Washington are colleagues in the six-nation coalition in Vienna, known as P5+1, that’s trying to rein in Iran’s nuclear ambitions. If it so chooses, Russia could easily put roadblocks in the way. It could, for example, engage in an oil-for-goods barter deal with Tehran, undercutting the effects of US sanctions that many credit with getting Tehran to the negotiating table.

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Speaking to the Interfax news agency, Russia’s Deputy Foreign Minister Sergei Ryabkov said Moscow was prepared to up the ante.

"We wouldn't like to take advantage of these negotiations [between the P5+1 group and Iran] as an element of gambling with a higher ante considering attitudes in some European capitals, Brussels and Washington," he said. "But if we are forced to do so, we will take retaliatory measures as well.”

Russian dissident Alexei Navalny is pressing the Obama administration to get tougher with Moscow. A candidate for Moscow mayor last fall, he garnered more than a quarter of the vote, but he’s currently under house arrest and his blog has been blocked in Russia.

On Wednesday The New York Times published an op-ed piece by Navalny advising the Obama administration on “how to punish Putin.”

Navalny recommends Washington widen its scope to target “the Kremlin mafia who pillage the nation’s wealth.”

He goes on to name nine individuals. Five of those ended up on the Treasury Department’s sanctions list the next day.

The four who didn’t make the list include the heads of Russia’s oil and gas industries, and two oligarchs — businessmen who made quick fortunes in the massive grabathon that followed the collapse of the Soviet Union.

While Obama has not ruled out measures against Russia’s energy sector, it would be a significant step to blacklist Igor Sechin, CEO of state oil company Rosneft, and Aleksei Miller, who runs the state-owned natural gas monopoly Gazprom, as Navalny suggests. The ripple effects could be severe, something that Obama acknowledged in his speech Thursday morning.

If the US was forced to target key sectors of the Russian economy, he said, “these sanctions would not only have a significant impact on the Russian economy, but could also be disruptive to the global economy.”

As for the oligarchs: Roman Abramovich is the owner of the UK’s Chelsea Football Club, while Alisher Usmanov is the second largest shareholder in Arsenal, another popular soccer team. Trying to mess with British football hooligans might give even the leader of the free world pause.

Jean MacKenzie worked as a journalist in Russia and other parts of the former Soviet Union for more than a decade. Her work has appeared in The Boston Globe, the Christian Science Monitor, Newsday and many other publications.

Journalist's Resource at Harvard's Shorenstein Center contributed reporting.