Biden's Russia sanctions leave some wiggle room for diplomacy

WASHINGTON (BLOOMBERG) – US President Joe Biden delivered on a vow to punish Russia for misconduct that he says went ignored under his predecessor. But for all the tough talk, Mr Biden’s move showed he’s still holding out hope for better ties with Moscow.

The sanctions announced on Thursday (April 15) included limits on buying new sovereign debt, expulsion of diplomats and restrictions on Russian companies said to provide support to Russian hacking operations.

Underpinning it all was an executive order giving the US authority to act again if Russia doesn’t stop behaviour such as election interference and cyber attacks.

Behind the enterprise – the result of a three-month review of Russian misdeeds – was a careful calibration: Although the administration portrayed the sanctions as severe, they weren’t the knockout blow that some American lawmakers and advocacy groups had been hoping for after years of Russian misdeeds and former President Donald Trump’s deference to President Vladimir Putin.

That reflected a wariness of potential economic blowback and also, according to some experts, the belief that wiping the slate clean in a burst of action was what’s needed and now could lead to more stable relations with Moscow.

“You start going after an economy like Russia, you realise the collateral consequences of getting this wrong are outrageous,” said Adam Smith, a former senior adviser in the Treasury Department’s sanctions unit and now a partner at Gibson, Dunn & Crutcher.

“It’s not just that they want to get it right, they don’t want to be rash.”

In a speech to the nation on Thursday, Mr Biden said he was fulfilling a vow to punish Russia for misdeeds, but didn’t want to “kick off a cycle of escalation” that would prevent the two nations from working together.

“I was clear with President Putin that we could have gone further, but I chose not to do so, I chose to be proportionate,” Mr Biden said, referring to a call with the Russian leader earlier this week.

“Throughout our long history of competition, our two countries have been able to find ways to manage tensions and to keep them from escalating out of control.”

The Kremlin signalled it was still open to a White House offer of a presidential summit – which Mr Biden said would be in Europe – and largely shrugged off the sanctions. Investors seemed relieved, as the ruble and Russian bonds recovered some of their early losses by the end of the day in Moscow.

Mr Biden said he has more measures to pressure Russia at his disposal but that he’s more interested in building a “stable, predictable relationship” with Moscow.

Still expected are sanctions aimed at blocking the Nord Stream 2 pipeline from Russia to Germany. Mr Biden said that is still an “issue that is in play”.

The State Department is expected to release a report in May detailing possible violators of US restrictions on pipeline construction, and Republicans in Congress argue that the administration hasn’t been tough enough in enforcement.

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Victoria Nuland, Mr Biden’s nominee for undersecretary of state for political affairs, said in her confirmation hearing on Thursday that the administration needs to accelerate its actions on Nord Stream 2.

One senior US official said the challenge all along had been on establishing deterrence – stopping Russia from repeating misdeeds – instead of punishing past actions piecemeal, as Mr Trump’s administration did, often under pressure from Congress.

Domestic politics also played a role: Mr Biden announced a review of Russia policy on his first day in office. The new administration wanted to send a signal that there would be no repeat of the Helsinki summit where Mr Trump stood alongside Mr Putin and seemed to back the Russian leader’s denials of election interference despite what his intelligence agencies had found.

“Sanctions likely will not deter future Russian harmful activities but may be crucial in the signal it sends to allies and partners that the US is prepared to respond more strongly in the future,” Emma Schoeder, assistant director of the Atlantic Council’s Cyber Statecraft Initiative, said in a note.

Reaction in Washington ranged from muted approval to outright scepticism, with Democrats and Republicans arguing that they were only a first step and the US must do more. They argued there’s little room for compromise and too many areas where Russia needs to be confronted, such as Nord Stream 2 and fears about Russia’s military buildup along its border with Ukraine.

“These are important first steps, but pushing back against Putin’s malevolence will require sustained actions and consistent pressure from the administration and our allies,” Senator Jeanne Shaheen, a New Hampshire Democrat, said in a statement.

Sanctions’ role

The announcement on Thursday was yet more proof of how central a role sanctions have come to hold in US foreign policy. Short of military action, there’s often little else the US can do to signal its disapproval of other nations’ behaviour. But punishing other countries too hard risks blowback on the US economy, particularly with a country of Russia’s size.

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This sanctions package was especially delicate because it comes as the Treasury Department is conducting what it calls a top-to-bottom review of US sanctions programmes to ensure that they remain “impactful and effective”.

Deputy Treasury Secretary Wally Adeyemo has met with members of the banking industry and sanctions experts as part of the review. The announced goal is to ensure sanctions remain “a powerful tool”.

US use of sanctions has ramped up since the Sept 11, 2001 terrorist attacks as a key tool to choke off terrorist financing and punish countries for what it considers malign activities. However the Treasury Department unit created in 2004 to oversee the nation’s financial warfare, the Terrorism and Financial Intelligence Office, has seen its budget remain flat while its workload increased dramatically.

The administration contends Thursday’s Russia sanctions managed to set the right balance.

Secretary of State Antony Blinken said in Brussels on Wednesday that the US seeks “open lines of communication” with Moscow in order to be “very clear about our views, about our policies, about our objections to Russia’s actions”.

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