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Nov 29, 2017 | 20:11 GMT

3 mins read

U.S.: Washington Weighs Its Options to Tighten the Squeeze on Russia

(Stratfor)
Forecast Update

Possible sanctions expansions against Russia confirm Stratfor's 2017 Fourth-Quarter Forecast, in which we highlight that the standoff between Russia and the United States will not end anytime soon. Increased checks on U.S. President Donald Trump's power and expanded sanctions from the U.S. Congress will limit White House options for alleviating the strained relations between the two countries. Similarly, the Russian elections slated for 2018 will keep Moscow from making major concessions to the West.

As the Russian economy continues to languish, the United States is evaluating its options for increasing pressure on the Kremlin as part of a two-pronged approach that would prohibit U.S. citizens from buying up Russian debt and also target Russian oligarchs. The U.S. Treasury Department will craft the proposal and is expected to release it early next year. Though neither prong is assured implementation and both will likely spark a political tussle between the administration of U.S. President Donald Trump and Congress, the proposals will give the United States two weighty options to further damage Russia's already battered economy.

In February 2018, the U.S. Treasury Department will issue a report detailing the effects the proposed sanctions will have on Russia and the global market. Current sanctions prevent certain Russian companies, such as Sberbank and Rosneft, from issuing bonds to Western investors, but they do not prevent the Russian government from issuing bonds. To circumvent the measures against Russian firms, the Kremlin has reportedly been taking on sovereign debt and transferring it to the sanctioned firms. As a result, this year, foreigners bought 30 percent of the total $25 billion in bonds the Russian government issued, up from 5 percent the year before.

The Russian government is planning to borrow another $18 billion to plug holes in its 2018 federal budget. As the Russian economy drags from recession to stagnation, Moscow's financial resources are growing more limited as it prepares for some worrisome financial hurdles in 2018. U.S. limits on borrowing will make it even more difficult for the Kremlin to maintain a stable federal budget while propping up the country's state firms. But they won't entirely shatter the fragile Russian economy.  

A second U.S. Treasury Department report to be released in February will profile the most notable Russian oligarchs and silovarchs and will include information on their families, net worth, evidence of corruption, foreign business ties and sources of income. Those named on the list will be considered candidates for injunction but will not automatically be sanctioned. The tactic is a peculiar one: In the past, sanctions on individuals have been limited to a few Kremlin-tied oligarchs, most of whom had few assets abroad and lived in Russia. This list would include many individuals who are not exceptionally loyal to the Kremlin and who have little or nothing to do with Russia's foreign policy. Those rumored to be included have vast holdings in the West and many live abroad. The ties these oligarchs have to the Kremlin have resulted more from necessity than loyalty. The Kremlin relies on the businessmen to maintain non-state entities, to support the financial sector and to maintain employment levels. A U.S. crackdown on the group would ripple widely through Russia's economy and its politics, possibly pitting many of Russia's elite against the Kremlin. 

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