Breaking Down Obama's Slick Russian Sanctions Play

Breaking Down Obama's Slick Russian Sanctions Play

07/18/14

Nikolas K. Gvosdev

Sanctions, Security, Russia, Ukraine, United States

"They are more than an annoyance, but far from catastrophic."

Listening to President Barack Obama announce the imposition of new sanctions against Russian companies and entities, I winced when I heard the line, "These sanctions are significant, but they are also targeted—designed to have the maximum impact on Russia while limiting any spillover effects on American companies or those of our allies." I had an image of the classic trope of the angel and devil sitting on the opposite shoulders of the Chief Executive, whispering into his ear as he spoke, except the two figures were replaced by Fred Hiatt of the Washington Post, urging stronger, more punitive, unilateral action in defense of freedom and U.S. values against the tyrant Putin, on the one hand, and Rex Tillerson, the CEO of Exxon Mobil, warning of dire consequences to the U.S. and global economy and of the damage American companies might suffer as a result—with a corresponding loss of jobs just months before a critical midterm election.

The measures that have been enacted are much tougher than previous iterations that focused on targeting individuals; they freeze any U.S. assets of a number of major Russian defense contractors and bar major Russian energy firms from being able to access U.S. credit markets for anything more than short financing. While Russian companies publicly tout their ability to obtain capital from other sources—starting with China—there is no doubt that the cut-off of longer-term dollar financing for major energy firms like Rosneft and Novatek will have a negative impact on their operations. (Curiously, while Gazprombank is sanctioned, Gazprom is not—a seemingly backhanded recognition that messing around with one of the critical sources of Europe's natural gas might not be welcomed across the Atlantic. Most of Novatek's gas production is destined either for the Russian domestic market or for China, given that it now has the right to export liquefied natural gas (LNG).)

But we should not overemphasize their importance. They are more than an annoyance, but far from catastrophic. They will create problems for the Russian economy, but they are insufficient in scope and impact to alter the Kremlin's calculus on Ukraine's importance to its strategic plans, as I detailed in a longer piece for this magazine.

Read full articlehttp://nationalinterest.org/feature/breaking-down-obamas-slick-russian-sanctions-play-10908