Trump to agree to new Russia sanctions but impact will be minimal, analysts predict- CNBC News

29/1/2018

Trump to agree to new Russia sanctions but impact will be minimal, analysts predict

A U.S. Treasury report outlining new sanctions to be enacted on certain Russian business entities is set to be released Monday.

This is part of the Countering America's Adversaries through Sanctions Act (CAATSA), and will lay out 12 sanctions measures, of which the Trump administration must enact at least five

Frustration has grown within Congress over Trump's apparent reluctance to act on bipartisan demands to punish Russia for alleged interference in the 2016 presidential election

Natasha Turak | @NatashaTurak

Published 18 Hours Ago Updated 16 Hours Ago

CNBC.com

Russia's President Vladimir Putin at the Russian Security Council meeting on January 19, 2018.

Mikhail Klimentyev | TASS | Getty Images

Russia's President Vladimir Putin at the Russian Security Council meeting on January 19, 2018.

Russian oligarchs are biting their nails in anticipation of a U.S. Treasury report outlining new sanctions to be enacted Monday on certain Russian business entities and friends of the Kremlin.

However, the Trump administration, which has been characterized as dragging its feet on punitive measures against Russia, is unlikely to enact the most stringent measures recommended in the legislation, analysts have told CNBC.

On Monday, several core provisions of the Countering America's Adversaries through Sanctions Act (CAATSA) come into effect. The bill will lay out 12 measures, out of which the Trump administration must enact at least five. The measures vary in intensity, from banning certain export licenses and corporate visas for sanctioned entities, to prohibiting all bank transfers involving "interests of sanctioned entities" under U.S. jurisdiction.

President Donald Trump is required by the broad mandate granted to him by Congress in July 2017 to act on this report, which will also detail information on Russia's state-owned enterprises; oligarchs and political officials close to Putin and their net worth; potential restrictions on Russian debt and equity sales to the U.S.; and sanctions relating to U.S. support for Ukraine following Russia's 2014 annexation of Crimea.

"The White House is seen as more likely to choose five of the 12 CAATSA measures that would have a relatively minimal impact, but it cannot be ruled out some of the more stringent ones will be imposed," Maximilian Hess, senior political risk analyst at AKE Group, told CNBC on Monday.

"I believe the primary issue will be in compliance, unless Trump chooses some of the more hardline measures," Hess said. "This is because the oligarchs report will effectively serve as a 'sanctions-list in waiting' and will make it more difficult for oligarchs and the businesses they control to access Western financial services."

Nervousness over which oligarchs will be listed in the Treasury report has prompted a rush by large Russian companies to issue debt, as Putin associates and business-owning billionaires fear being named will significantly impede their ability to raise funds in the West. International investors are meanwhile snapping up the high-yield Russian bonds before their access is potentially cut off.

Frustration in Congress

Frustration has grown within Congress over Trump's apparent reluctance to act on highly popular and bipartisan demands to punish Russia for alleged interference in the 2016 presidential election and for its military activities in Ukraine.

While enacted in July, CAATSA was only signed in August amid much protest from the president. Suspicion over Trump's ties to Russia grew when the White House missed a pivotal CAATSA deadline in October to name Russian defense and intelligence entities slated for new sanctions. The Trump administration has consistently denied any ties with Russia, insisting that it solely aims to pursue a warmer relationship with the longtime U.S. adversary.

This time, however, compliance from Trump is expected, according to AKE's analysis.

"It is unlikely that Trump will delay the actions today," Hess said. "The delay was in October and is relatively unlikely to be repeated, although should it be, it would certainly further sour his relationship with a number of members of Congress on his own side." These would include Florida Senator Marco Rubio, a Republican, who has explicitly called for certain individuals to be named.

US President Donald Trump (R) and Russia's President Vladimir Putin talk as they make their way to take the 'family photo' during the Asia-Pacific Economic Cooperation (APEC) leaders' summit in the central Vietnamese city of Danang on November 11, 2017.

US President Donald Trump (R) and Russia's President Vladimir Putin talk as they make their way to take the 'family photo' during the Asia-Pacific Economic Cooperation (APEC) leaders' summit in the central Vietnamese city of Danang on November 11, 2017.

The Kremlin on Monday called the impending report an attempt to influence Russia's March presidential election, adding that it would fail to impact the vote, according to Reuters. Incumbent President Vladimir Putin is expected to retain the presidency, in a contest many Russian rights activists say will be rigged.

High-profile Russian business leader Andrei Kostin, head of state lender VTB, last week called any renewed sanctions a "declaration of war."

'A new low' in Russia-US relations

Still, most Russian reaction to the bill is predicted to be muted, said Tim Stanley, managing director for Russia/CIS at Control Risks in Moscow.

"So far publicly, on the whole the response has been fairly muted and low-profile... the response will be very cool and pragmatic. That said, I think beneath the surface there is a lot of concern about how much worse these sanctions are going to get," he told CNBC on Monday.

Stanley also noted that while the impact on sanctioned individuals might be severe, "direct immediate impact on the Russian economy, I believe, will be muted."

Putin also does not have at his disposal the tools to respond to the U.S. in kind, and may resort to "asymmetric" retaliatory measures instead, Stanley said.

"It is all but certain that Putin will respond, although this may not come in the form of imminent measures," said Hess, adding that "he may well try and use this as another opportunity to reach out to Trump and see if they can come to some kind of 'grand(er) bargain' to lower Russian-U.S./Western tensions."

Europe looks to see more impact from any new sanctions than the U.S., primarily because these compliance measures will predominantly impact financial services, and U.S. financial institutions have moved away from suspect Russian businesses more quickly than EU companies have. Ultimately, the sectors affected depend mainly on which oligarchs are named in the report.

As American and Russian lawmakers await the report and the White House's response, the impending news is likely to be another blow to a fast-deteriorating relationship.

"It's hard to imagine the relations between Russia and U.S. getting much worse," Stanley said, "but I think we are about to see a new low."