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Biden administration fires warning shot with new Russian sanctions

Written by The Frontier Post

John Hardie & Matthew Zweig

The Biden administration announced new sanctions and other punitive actions last week in response to a wide range of malign Russian activity. The sanctions entail a modest increase in economic pressure that provides room to escalate further, yet the triggers for future escalation remain unclear.
First, Treasury designated 46 individuals and entities for supporting Russia’s occupation of Crimea, for efforts to influence the 2020 election, or for malicious cyber activities. The administration also formally attributed last year’s SolarWinds hack to Russia, announced expanded cybersecurity initiatives and “unseen” cyber action against Russia, and expelled 10 Russian officials from Russia’s Embassy in Washington.
Second, in response to the SolarWinds hack and Russia’s election-influence activities, Treasury barred US financial institutions from participating in the primary market for Russia’s ruble-denominated sovereign debt. Previous sanctions, imposed in August 2019 over Russia’s nerve agent attack in England, applied only to primary issuances of non-ruble-denominated debt.
A senior Biden administration official predicted that expanded sovereign debt sanctions would “create a broader chilling effect that raises Russia’s borrowing costs” and causes capital flight and currency depreciation, thus undermining economic growth and increasing inflation. In fact, Moscow responded by cutting its 2021 borrowing plan by 25 percent more than previously planned. Yet the impact of the new sovereign debt sanctions will likely remain limited. Russia has very low reliance on debt, particularly foreign debt, and has massive reserves and other sources of funding stockpiled if needed.
Furthermore, as the Biden administration made clear, the sovereign debt sanctions do not apply to existing holdings or to the secondary market, the areas in which Russia faces greater exposure to US sanctions. Russian financial markets largely shrugged off the sanctions.
Even if the new sanctions exert minimal pressure, the additional economic headwinds come at a bad time for the Kremlin. A decline in real incomes since 2014, exacerbated by COVID-19, has increased popular frustration. For many Russians, a surge in inflation since late 2020, particularly in food prices, has added to their troubles.
Finally, the White House unveiled a new executive order authorizing future sanctions designations against, inter alia, any individual or entity operating in Russia’s technology or defense sectors or in any other sector of the Russian economy that the administration may subsequently designate.
“This E.O.,” the White House said, “sends a signal that the United States will impose costs in a strategic and economically impactful manner … if [Moscow] continues or escalates its destabilizing international actions.” Potential triggers for future sanctions range from election-influence and malicious cyber activities to strategic corruption, transnational repression, violations of “well-established principles of international law,” and activities that “undermine security in countries and regions important to” US security.
The administration also noted it can “expand sovereign debt sanctions on Russia as appropriate,” another means to deter further bad behavior. These expanded authorities provide a powerful new tool to hold the Kremlin accountable and hopefully deter further malign behavior.
Yet the administration’s threshold for escalation may be too vague. Would the administration employ these sanctions in response to run-of-the-mill disinformation campaigns or reserve them for higher-impact activities, such as a hack-and-leak or disruption of voting infrastructure? Likewise, practically any Russian intelligence operation in Europe could “undermine security” in a nation important to US security.
This ambiguity may be intended to enhance deterrence by preventing Moscow from anticipating Washington’s response to new provocations. Yet this uncertainty may only encourage the Kremlin to inch ever closer to implicit red lines. The Biden team should therefore consider issuing more specific warnings and identifying graduated response options involving sanctions and other measures, as appropriate. The administration should also discuss these options in advance with Congress and America’s allies and partners.
John Hardie is research manager and Russia research associate at the Foundation for Defense of Democracies, where Matthew Zweig is a senior fellow. They both contribute to FDD’s Center on Economic and Financial Power. Follow Matthew on Twitter @MatthewZweig1.

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