U.S. Congressional Sanctions Carry Consequences Beyond Russia

6 MINS READJul 25, 2017 | 23:23 GMT
Sanctions legislation in Congress not only could increase tensions with Moscow and block President Donald Trump from easing or lifting sanctions against Russia, but the package also could complicate relations with some European allies.
(JIM WATSON/AFP/Getty Images)

Sanctions legislation in Congress not only could increase tensions with Moscow and block President Donald Trump from easing or lifting sanctions against Russia, but the package also could complicate relations with some European allies.

Stratfor's geopolitical guidance provides insight on what we're watching out for in the week ahead.

The U.S. House of Representatives approved legislation on July 25 that would place new sanctions on Russia and also put a check on President Donald Trump's ability to remove sanctions that are already in place. The 419-3 vote in the House came three days after congressional leaders reached an agreement on the heavily debated bill, which includes sanctions language on North Korea and Iran as well. The compromise sanctions package now moves to the Senate, where a previous version passed overwhelmingly in June.

The key elements of the sanctions bill include the following:

  • The congressional review mechanism on removing sanctions or the application of sanctions remains intact. If the president wants to remove sanctions against Russia, he must submit a report to Congress citing his rationale for doing so and the effect it would have on U.S. national security interests. The House and Senate would have 30 days to either agree with the president or block him. That decision could be vetoed by the president, but Congress could override him with a two-thirds majority vote in each chamber.
  • The financial sanctions on certain Russian energy companies that limit U.S. persons and firms from dealing in certain maturities of debt now covers all debt with a maturity length of over 60 days rather than 90 days.
  • A provision, also in the previous Senate version of the bill, that could lead to a ban on investing in Russian sovereign debt. 
  • The sanctions preventing U.S. persons and companies from participating in Russian Arctic offshore, deepwater and shale oil projects have been changed. U.S. persons and companies will now not be allowed to work in any new Arctic offshore, deepwater or shale project globally where certain Russian energy companies have either a controlling stake or a "substantial" minority stake defined to be 33 percent or higher.
  • The bill now makes it mandatory rather than optional for the United States to impose sanctions on foreign firms that are investing in or helping Russian deepwater, Arctic offshore and shale projects in the Russian Federation or its exclusive economic zone. The president can waive these sanctions if it's in the U.S. national security interest to do so. Europe essentially has the same sanctions, but the European Commission gave waivers to companies that had existing blocks (like Eni's Black Sea and Arctic offshore projects).
  • The optional sanctions on firms helping develop Russian energy export pipelines, such as the German companies involved in building the Nord Stream 2 pipeline to carry Russian natural gas to Europe, also remain.

The package thus adds considerable congressional oversight on Trump in the application of sanctions and makes several restrictive changes to the energy-related components of the sanctions. White House press secretary Sarah Huckabee Sanders said July 23 that the Trump administration was "able to work with the House and Senate, and the administration is happy with the ability to do that and make those changes that were necessary," adding that "we support where the legislation is now." This statement appears to indicate that Trump will sign the sanctions package once the Senate passes it, possibly before Congress breaks for its August recess. Given the strong support the bill has on both sides of the aisle in both chambers, should the president reject the bill, his veto would likely be overridden.

The compromise bill is likely to add considerably to the tensions between Moscow and Washington at a time when Trump and Russian President Vladimir Putin are still reaching for low-hanging fruit — such as a resolution to the seizure of Russian diplomatic compounds in the United States — to set the U.S.-Russia relationship on a conciliatory track. Russia has said that it views the new sanctions "extremely negatively" but that it will reserve its judgment until the official details of the sanctions are made clear, with Kremlin spokesman Dmitry Peskov stating "we have heard certain adjustments and will wait with patience when this position is worded clearly."

Assuming the bill's language remains unchanged from its current form and it is signed by Trump, Russia could seek to retaliate against the United States in various ways. Russia could increase its own economic restrictions against the United States, for example, or ratchet up pressure against the United States in any number of theaters. One primary theater would be Ukraine, where Russia can drive separatists to escalate fighting in Donbas as a means to pressure Kiev and its Western backers. Indeed, a recent spike in fighting and a proposal by a rebel leader to form a new "Malorossiya" state could be seen as signals of Moscow's displeasure with the negotiation process. Another primary theater would be in Syria, where Russia can back out of a recently introduced cease-fire agreement with the United States and play more of a spoiler role against Western-backed rebel forces in the long-running conflict.

Russia also has been building ties in other, secondary theaters as a means to increase its leverage with the United States in their ongoing negotiation process. In Venezuela, where a long-simmering political crisis has the potential to accelerate in light of growing signs that the United States could impose sanctions against state-owned oil firm Petroleos de Venezuela, Russia has been increasingly involved in asylum negotiations for embattled President Nicolas Maduro. In North Korea, Russia has been building economic and energy ties to the country, just as the United States has been preparing a sanctions vote over North Korea's missile tests in the U.N. Security Council, where Russia has veto power. And in Afghanistan, Russia has been building diplomatic and potential security ties with the Taliban, just as the United States has been working to increase its military presence in the country.

Russia is not the only power concerned about the proposed U.S. sanctions. The European Union also has reacted negatively, given that its energy operations would be affected by the sanctions. The European Commission warned of "wide and indiscriminate" unintended consequences, while countries such as Germany have threatened to retaliate against the United States if the sanctions affect projects like Nord Stream 2. The mandatory secondary sanctions are essentially the same sanctions that Europe has in place, but Europe gave waivers to companies that had existing blocks — like Eni's Black Sea and Arctic offshore projects — and this is where things could get complicated. If the United States, for example, decides to apply secondary sanctions on Italy's Eni, which plans to start drilling in the Black Sea this summer, then Italy will object. Italy's biggest course of action could be asking the European Union to restart an age-old debate around the international legality of U.S. secondary sanctions, which could include bringing it up to the World Trade Organization. According to one internal memo within the European Commission, if the sanctions are enacted, Europe will respond "within days." Thus the congressional sanctions legislation not only is likely to worsen the standoff between the United States and Russia, but it also will complicate ties between the United States and EU countries affected by the energy-related sanctions.

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