Sanctions Victory for Putin? Few Are Celebrating in Moscow

(Bloomberg) -- In Washington, the U.S. Treasury’s lifting of sanctions on aluminum giant United Co. Rusal has drawn criticism as a win for Russian President Vladimir Putin. In Moscow, few see much reason to celebrate.

“This is a very bad signal for the Kremlin,” said Valery Solovei, a political scientist at the Moscow State Institute for International Relations. “It could mark the beginning of a trend: if the Americans have managed to neutralize one of the Kremlin’s paymasters and influential lobbyists, then they can do the same with others. The question is who is next.”

Other rich businessmen and people close to the Kremlin say the U.S. Treasury’s move to force tycoon Oleg Deripaska to cede majority ownership has weakened Russia’s influence over the nation’s biggest aluminum producer. Many companies that haven’t yet be targeted by restrictions say they are trying to work out how best to protect themselves. All spoke on condition of anonymity to discuss politically sensitive issues.

The restrictions introduced last April on Rusal, En+ Group Plc and EuroSibEnergo JSC sent aluminum prices soaring and hammered the ruble. Though the Kremlin discussed aid, the scale of the problem facing the country’s largest aluminum producer meant Deripaska had little choice but to give in to the U.S. demand that he cut his ownership. The billionaire, who is an ally of Putin, will remain under U.S. sanctions and his property will remain blocked.

He’s given up his biggest asset and he’s still toxic, said a person close to another sanctioned tycoon, adding that any step he takes will just make things worse.

Sanctions Victory for Putin? Few Are Celebrating in Moscow

Congressional Democrats tried to scupper the deal, arguing that it makes Washington look soft on Putin at a time when Special Counsel Robert Mueller is continuing his investigation of Russian interference in the 2016 presidential election and possible connections to the Trump campaign. Former Russian Ambassador Michael McFaul wrote on Twitter that the turnaround gives a “big win” to Putin.

For companies anxiously waiting for a potential next round of U.S. sanctions over alleged election interference, those complaints are yet another reason for concern. Treasury Department officials may now feel that they need to placate critics with harsher restrictions, according to Tim Ash, an strategist at BlueBay Asset Management in London.

An executive at another Russian mining company said it isn’t obvious now whether tycoons should try to preempt sanctions on their companies by reducing their ownership. If that were to happen, it would create a bigger headache for the Kremlin and it’s hold on strategic industries.

On one hand, the U.S. move spares the Kremlin the need to spend money to support the aluminum industry, a major employer, Solovei said. “On the other hand, in effect it means that a significant amount of control over the company has moved into the hands of external forces that aren’t friendly to the Kremlin.”

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