New U.S. sanctions on Russia are mostly symbolic

In the week after a phone call between U.S. President Joe Biden and Putin, Russia-U.S. relations continue to oscillate wildly. New U.S. sanctions on Russia imposed Thursday were mostly symbolic, but Washington has kept the door open to new restrictions. Meanwhile, preparations for a face-to-face meeting between Biden and Putin continue — but it’s unclear when this might happen.

• Biden spoke with Putin on Tuesday for the first time in Biden’s three months as president (previously their only contact had been when Putin congratulated Biden on winning the election), and suggested a face-to-face meeting. The call was regarded as a win for Putin, with pro-Kremlin experts quick to suggest it was Russia’s military build-up on the Ukrainian border that had ‘made people take us seriously’.
• The following day it emerged that new U.S. sanctions on Russia were the stick attached to the White House’s carrot of a Putin-Biden summit. At first sight, the sanctions appeared to be damaging. In addition to restrictions on companies associated with the influential Yevgeny Prigozhin, known as ‘Putin’s chef’, and the usual round of diplomat expulsions, we saw the first limitations on trading in Russian debt. However, the U.S. measures barely caused a ripple on the markets and, by the evening, the ruble had strengthened against the dollar.
• Why? Firstly, there were no big surprises. Secondly, foreign investors were only barred from taking part in the first placements of new Russian government bonds — meaning that anybody can simply purchase the securities from the original buyer.
• And even if investors flee government bonds, it won’t have a big impact on Russia’s finances. As a result of geopolitics, the pandemic and a big fall in Russian rates (in late 2014, the key rate was 17 percent, today it is 4.5 percent), the number of non-resident investors in government bonds has fallen from 35 percent to just 20 percent in recent years. And if it dropped to 0 percent, it would only cost the Finance Ministry up to $290 million, according to Marcel Salikhov, a researcher at the Center for Comprehensive European and International Studies.
• The only real cause for concern in the new sanctions was the legal measures the U.S. used to impose them. Now, the Department of the Treasury has the right to sanction any company for its work in the tech or defense sectors, or links with the Russian government. This may mean foreign businesses shy away from the slightest connections to the Russian state.

What happens next?

• Political analysts are of one mind: a meeting between Biden and Putin will bring no miraculous reset. Most likely, the two men will only debate matters of shared strategic importance like nuclear programs in Iran and North Korea, climate change, and the pandemic. The really tricky stuff – the crisis on the Ukrainian border, cyber-attacks – won’t see any breakthrough.
• Meanwhile, more sanctions remain likely. The next deadline is June 2, when the U.S. is expected to impose sanctions over the poisoning of Navalny. The law dictates that the U.S. president must impose new restrictions — however, he can make them largely cosmetic if he wishes.

Why the world should care

It may seem like last week’s developments were a fundamental change in U.S.-Russia relations, but the status quo remains intact. Washington’s main instrument to pressure Russia is not sanctions, but the threat of them. This has a far greater impact on the markets and the ruble than any real-life restrictions.