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August 17th, 2018

World

Russia takes economic hit from new US sanctions. That might help Putin

 Anton Troianovski

By Anton Troianovski The Washington Post

Published August 10,2018

Russia takes economic hit from new US sanctions. That might help Putin
MOSCOW - The ruble weakened and Russian stocks plunged on Thursday in the wake of new sanctions announced by the Trump administration.


In the world of Russian politics, the spike in East-West tensions could boost President Vladimir Putin's flagging popularity. But it has also left Russians wondering what that Helsinki meeting was all about.


"This sort of decision by the American side is an absolutely unfriendly act," Kremlin spokesman Dmitry Peskov told reporters. "It can scarcely be associated in any way with the constructive - not easy but constructive - atmosphere at the most recent meeting of the two presidents."


Peskov slammed the new sanctions as illegal and repeated that Russia had nothing to do with the poisoning of a former Russian spy in England in March - the episode that sparked the fresh trade restrictions and other measures announced Wednesday. He said it was too early to talk about Russian countermeasures because the full scope of the U.S. sanctions was not yet known.


But investors did not wait for details, driving the Russian ruble to a two-year low against the dollar and sending shares in Russian companies plummeting on the stock market. One of the hardest hit was Aeroflot, the Russian national airline, which could lose its ability to fly to the United States as a possible consequence of the new sanctions.

Aeroflot currently has flights to New York, Washington, Miami and Los Angeles.


The State Department's surprise announcement of the new sanctions jolted Moscow, where some politicians and analysts had been hopeful that Putin's meeting with President Donald Trump in Helsinki in July would stabilize U.S.-Russian relations. A 1991 U.S. law, however, mandates sanctions once the president makes a determination that a country is responsible for a chemical or biological weapons attack.


The first round of the new sanctions, scheduled to take effect Aug. 22, will include a broad ban on technology exports to Russia. Unless Russia agrees within 90 days to stop all use of chemical weapons and permit inspections to confirm their elimination, the law requires the United States to choose from a range of additional measures, including withdrawal of U.S. support for international loans and U.S. bank loans, prohibition of landing rights for Russian airlines, and suspension of diplomatic relations.


Analysts in Moscow said it was highly unlikely that Putin would allow inspectors to enter the country to head off the additional sanctions, since doing so would look like succumbing to U.S. pressure. Instead, Russia is likely to respond with its own sanctions.


A senior lawmaker, Sergey Ryabukhin, said Russia could halt exports of its RD-180 rocket engines, which the United States largely relies upon to launch government satellites into space. A ban on Aeroflot flights to the United States could lead to a ban on U.S. airlines traversing Russian airspace. Many flights between the United States and Asia traverse Russian airspace.


"Mr. Putin's entire track record shows that he doesn't back down under pressure but, rather, goes the other direction," said Andrey Kortunov, director general of the Russian International Affairs Council, a Moscow think tank that receives state funding.


Russia is bracing for yet more U.S. sanctions beyond the ones announced by the State Department on Wednesday. Bipartisan legislation introduced in Congress last week would punish Russia's energy and financial sectors and sanction Russian sovereign debt.


Sen. Lindsey O. Graham, R-S.C., a sponsor of the bill, said the punitive measures currently in place "had failed to deter Russia from meddling in the upcoming 2018 midterm elections."


The sanctions enacted so far this year, and the threat of more, have already inflicted pain on Russia's middle class. In early April, just before the first tough round of U.S. sanctions in response to Russian "worldwide malign activity" was announced, the ruble stood at roughly 58 to the dollar. After its latest dive Thursday, the ruble had fallen to roughly 66 to the dollar - a decline that harms the buying power of Russians interested in traveling abroad or in buying foreign goods.

The higher price of oil, however, has given Russia's government a large financial cushion to maintain public services and to assist business magnates targeted by U.S. sanctions. And unlike the coordinated transatlantic sanctions enacted in response to Moscow's annexation of Ukraine's Crimea region in 2014, America's European allies - who together trade far more with Russia that the United States does - are not following suit this time with new sanctions of their own.


As a result, Russian analysts say that fresh sanctions are unlikely to weaken Putin, at least in the short term. In fact, a new spike in tensions with Washington could provide a convenient distraction for the Kremlin at a time when Putin faces domestic discontent over the government's effort to raise the retirement age. Lev Gudkov, director of Russian independent pollster Levada Center, said the sanctions could boost Putin's approval rating, even though economic challenges could harm him in the long term.


What was certain, Gudkov said, was that pro-Kremlin media outlets would use the new sanctions as fresh confirmation of a story line about a "Russophobic" West that many Russians believe. Washington, those outlets say, wants to block Russia's return as a world power and is willing to harm the Russian people to that end.


"Putin's legitimacy is based on the idea of a great power, on the image of an enemy and so on," Gudkov said. "Because of this, it's far from clear that a decline in people's material condition will by itself lead to Putin's popular support melting away."

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