Russia’s bluff on counter sanctions

The shine on Russian president Vladimir Putin’s honeymoon, after his landslide victory in the March elections, appears to be coming to be dulling. 

The Skripal case and the mass expulsion of Russian diplomats from several Western countries; environmental protests in Volokolamsk demanding the closure of a harmful landfill; the Telegram scandal; and the mass street protests ahead of the presidential inauguration, are just a few of the issues Putin is contending with.

The latest hurdle might to be the announcement of new sanctions on seven Russian oligarchs, 17 top government officials, and 14 entities for ‘malignant activity’, ‘aggressions’, and for alleged interference in the 2016 US elections.

In April, individuals and companies were added to the Specifically Designated Nationals (SDN) list which bars Americans from doing any business with them and freezes their assets. The Russianstock market took a hit and the ruble nosedived. The oligarchs hit by the sanctions are major players in Russia’s energy sector and are known to have close ties with the administration in Kremlin. Moscow called US sanctions “outrageous” and offered support to the affected companies from government coffers.

Sanctions from select Western states are aimed at destabilising the country’s economic situation, harm Russian elites and put pressure on Putin. 

So far, Putin has tried to limit the impact of sanctions by arousing “anti-Western” sentiment and encouraging a “Russia against the world” narrative. However, it seems that this time ‘anti-Russian’ measures will also come from Russia’s own government. A plethora of prohibitions of Western goods and medicines are being considered by the government sparking a critical debate within the country.

Tit for tat

Russia’s Foreign Minister, Sergey Lavrov, vowed a “harsh response” and stated that the measures would be as ineffective as previous sanctions implemented by western states. To explain the phenomenon of this rebuttal we should consider Russia’s ‘homeopathic’ mentality of its politics and its bellicose behaviour.

The country thrives on its realpolitik discourse and cannot withstand the image of being meek and fragile. Mass propaganda based on public trauma borne out of poverty in the 1980s, of ‘Perestroika’ times and reforms of the 1990s, continues to influence ideological rather than economic issues by instilling fear of change.

The Kremlin should be pleased with the results: an atmosphere of fear inside the country has led to an increase in the approval ratings of the ruling regime. Another approach is to declare sanctions as an assessment of loyalty of the oligarchs to the Kremlin, to request more financial and business support from the national exchequer which will only exacerbate the condition of ‘law abiding’ citizens.

Is Russia bluffing?

To hold on to its strong lineage of refuting sanctions, the Russian Assembly decided to act in the face of new US sanctions. Within one week, the Duma speaker Vyacheslav Volodin introduced a bill for potentially retaliatory moves against US sanctions and restricting a list of US imports.

The draft law is aimed at “protecting Russia’s interests and security” in the face of “unfriendly and unlawful acts by the United States of America and other foreign states”, and on May 22, the Kremlin passed the final third reading.

Thus, the State Duma endeavours to reach a ‘high international level’ to occupy the line of contact with the ‘enemy’ by mirroring Congress’ actions and claiming the right to critically evaluate the response to the sanctions over all other government agencies. The primary purpose of the package is to sever economic relations with the US.

However, the structure of trade between Russia and US is asymmetric: Russia supplies raw materials and commodities to the US, while the US provides Russia with technology, machinery, drugs, tobacco, alcohol and food. 

Meanwhile, counter sanctions may allow the Russian government to halt cooperation in the aircraft industry, ban the exports of titanium, alcohol and — most substantially — ban on the imports of US-made medication.

According to official data, Russia imported $12.5 billion worth of US products in 2017 which means that citizens accustomed to American goods will mostly likely suffer even though American importers are unlikely to take a significant hit, in particular because the Russian market is not a relatively large market for their bottom line.

An article in the bill that mentions American drugs, however, caused a significant backlash among ordinary Russian citizens. The committee on international affairs criticised the proposals that could negatively affect some vulnerable groups of the population - particularly people with disabilities and those suffering from severe chronic diseases.

American pharmaceutical companies will easily survive the loss - their global sales are worth $450 billion annually. Whereas American drugs exported to Russia are worth a mere $600 million.

Russian attempts to act in kind by proposing sanctions on American products are unlikely to damage America as much they could damage Russia itself.

Softening the bill or unpredicted ‘Irrusianality’ 

On May 11, Duma tried to soften the initial draft by removing language that had targeted specific sectors and products ranging from medication to aerospace. The main reason was the sharp criticism in Russia including from those who are usually loyal to the authorities. As a result, the State Duma backed off and stated that no details would be revealed within the bill. According to the new version, the president can make a decision and limit cooperation with "unfriendly foreign states".

Having already softened the bill, deputies decided to also introduce tougher criterions by proposing criminal punishment for those believed to be colluding with anti-Russian sanctions, which could be punishable to imprisonment for up to four years.

Experts warn that such a ban would increase the workflow of foreign companies in Russia and carry adverse effects on the country’s economy. On the one hand, companies will need to still adhere to American sanctions in order to avoid punishment from the US however they also face punishment from Russian authorities for obeying those sanctions. If the Kremlin cares about its economy, this isn’t a great time to tell investors they could be punished for applying western sanctions.

The bill has caused a rare wave of national criticism not only from the opposition but also from various sides of the governing political spectrum. The dispute between internal competitors is unlikely to be noticed by external observers. However, the Kremlin has to face the reality that counter sanctions will only exacerbate the economic and political situation of the country. 

Is Russia bluffing or should Russian citizens indeed be worried about the new counter sanctions?

Putin is not offering to show his hand about which sectors the Russian government will target, yet a Kremlin response is all but certain. Putin wants others to listen up, and he certainly wants to achieve this in the next six years. Nonetheless, what matters most is the future of Russia’s new ‘isolationist’ policy which may eventually end up harming Russia itself.