Putin, don’t expect much from Trump’s sanctions relief

Recent reports suggest that President Trump is preparing to roll back U.S. financial sanctions on Russia in order to improve bilateral relations. But such measures will not deliver any significant economic relief to Russia, and they could be undercut by Russia hawks in the U.S. Congress.

What’s more, sanctions relief could hurt some U.S. economic interests. 

{mosads}President Trump has offered little regard for the financial sanctions enacted by the Obama administration to target Russia’s territorial aggression in Crimea and Eastern Ukraine.

It would come as little surprise if he acts unilaterally to implement this policy, even without Moscow’s fulfillment of Minks commitments as demanded by European leaders and many in Congress. The sanctions Trump would abolish restrict Russia’s banking, energy, and defense sectors, and impose visa bans and asset freezes on Russian and Crimean individuals. They were carefully coordinated with Europe, and supplemented by the U.S. Congress.

Beyond creating a U.S.-EU political rift, peeling back U.S. sanctions on Russia now will leave the international business community uncertain about legal liability. Global companies will still be subject to European sanctions on Russia. So, banks and oil companies shut out of Russia and that have a footprint in Europe won’t be able sign new deals with sanctioned Russian firms.  

Even those international investors in the position to sign new contracts with Russia may be reluctant to do so. Attempts by the last two U.S. presidents to re-set relations with Russia failed. This one could too when Presidents Trump and Putin fail to see eye to eye. International companies will be caught in the crosshairs.  

The history of sanctions removal suggests that rolling back these financial measures is underwhelming. Companies must navigate remaining financial restrictions and their stomach for new investment is not so strong. Executives who have tried to reinvigorate business in Iran, Cuba, and Myanmar have all struggled and achieved relatively limited success.

In the Russia case, the risk for the business community is not hypothetical if sanctions are removed.

A bipartisan group of 10 Senators guided by Senate foreign relations leaders Ben Cardin, John McCain, and Lindsey Graham, recently announced a punishing new sanctions bill. It would go much further to damage Russia’s economy than the present set of sanctions. To fortify their efforts, they are crafting additional measures to force Trump to keep sanctions on Russia. 

If President Trump lifts sanctions, and can hold an angry Congress at bay, Russia will not see a surge of economic empowerment.

Sanctions never hurt Russia as much as the 2014 collapse in oil price. Additionally, Russia remains a badly managed economy struggling with adverse demographics and weak growth. World Bank estimates suggest that GDP will have grown only 1 percent over the six years of Putin’s third term, even while the country pumped the highest volumes of oil since the Soviet era.

Lifting sanctions actually may hurt Russia economically in some areas. It will have a negative effect on oil prices. That means less revenue for Russia’s resource-intensive economy, and a poor outlook for its cash flow. Commodity revenue accounts for almost half of Russian state revenues.

And economic pain from removing Russia sanctions could also be felt here. A depressed global oil price will hurt U.S. oil producers struggling for solvency in a bleak market. It will also hurt their prospects to compete in the global crude export market. And when it comes to natural gas, lifting sanctions on Russia will hurt the ability of U.S. LNG suppliers to compete internationally.

Looking beyond energy, the United States may cede market share to Russia in other areas resulting from the lifting of sanctions. Some regions abroad are eager to forge stronger ties with Russia, including the Middle East.

The Qatar Investment Authority recently signed a deal for a major stake of Russian energy crown jewel, Rosneft, for example. A Russia unencumbered by sanctions may be a more attractive business partner than the United States. It’s possible that U.S. contracts may not measure up.

The immediate and obvious benefit to Russia from the roll back of U.S. sanctions is a divided transatlantic community on policy toward Russia and the increased ability for Russia to project its influence internationally.

However, Moscow will still struggle to fund its adventurism. It will not see an avalanche of hard currency and weak oil prices will weaken its ability, and credibility, to impose threats. Also, Russia will not see any automatic improvement in its ability to manage its macroeconomics.

President Trump has never made it clear exactly what he wants from Russia in return for lifting sanctions. It appears that what he will get from doing so is a partner in Moscow no stronger than at present, and a severely undermined transatlantic alliance. Not only that, but President Trump will take a hit on U.S. economic competitiveness.

Elizabeth Rosenberg is Director of the Energy, Economics, and Security Program at the Center for a New American Security.

The views from contributors are their own and not the views of The Hill.