Donald Trump speaks during the Republican National Convention in Ohio, U.S. (Photographer: David Paul Morris/Bloomberg )

Trump Escalates Pressure on Russia as West Rallies Against Putin

(Bloomberg) -- President Donald Trump is ramping up the economic and diplomatic pressure on Russia after more than a year of bipartisan criticism -- including from his own top aides -- that he hasn’t done enough to confront Moscow over meddling in the 2016 election.

Trump’s move on Friday to sanction dozens of Russian tycoons, companies and key allies of President Vladimir Putin are among the most significant actions to date and add to a succession of moves by the U.S. and its allies in recent weeks. The latest sanctions hit Putin allies including Oleg Deripaska, the billionaire founder and majority shareholder of En+ Group Plc, the man once married to Putin’s daughter and key public companies.

“Today’s action is far and away the most significant sanctions action against Russia since the imposition of sectoral sanctions in 2014,” when Russia annexed Crimea, said Brian O’Toole, a senior fellow at the Atlantic Council who previously worked in Treasury’s sanctions unit.

The move bolsters Trump’s claims this week that no one has “been tougher” on Moscow than his administration, even while he continues to avoid publicly criticizing Putin or Russia’s actions in 2016. And they follow a concerted effort by Western nations to punish Putin for the nerve-agent poisoning of a former Russian spy in the U.K. earlier this year. In response to that attack, which Russia denies, the U.S. expelled 60 Russian diplomats and closed the country’s consulate in Seattle.

Read a QuickTake on why Russians continue to stand by Putin

Until Friday, however, Trump had even faced criticism from some of his own top advisers over his approach to Russia. National Security Adviser H.R. McMaster, in a withering speech before his departure this week, said “we have failed to impose sufficient costs” on Russia for its actions. Admiral Michael Rogers, Trump’s head of the National Security Agency and Cyber Command, told senators in February that “we’re probably not doing enough.”

“They haven’t paid a price at least that’s sufficient to get them to change their behavior,” Rogers said.

The White House pushed back Friday with a fact sheet highlighting actions it has taken. They include banning government agencies from using software produced by Russia-based Kaspersky Lab Inc. and maintaining the closure of two Russian diplomatic compounds enacted by President Barack Obama in his final days in office.

Democratic Support

Yet even long-time critics of the administration praised the president’s latest decision.

Adam Schiff of California, the top Democrat on the House Intelligence Committee, which has investigated the Trump campaign’s possible ties to Russia, called the sanctions “the most significant action the Trump Administration has taken to date to see Russia punished for its interference in our election, its murder of dissidents at home and abroad, and its subversion of democracy and peace from Syria to Ukraine and beyond.”

“By isolating Putin’s regime and financially punishing his support base among the oligarchs, we may be able to induce a change in Moscow’s behavior -- if not, we will have to explore other options to pressure the Kremlin to chart a new direction,” Schiff said.

‘Much Tougher’

Charles Kupchan, a senior fellow at the Council on Foreign Relations who served on the National Security Council in the Obama administration, agreed that the sanctions represented an escalation that showed Trump may be ready to raise the pressure on Putin.

“There is an effort to turn up the heat and to try to impress upon Putin’s inner circle they are going to pay a price for Russia’s aggressive behavior on a host of different fronts,” Kupchan said in an interview. “These economic sanctions are much tougher than the sanctions that were implemented a couple months ago.”

While the sanctions struck some individuals close to Putin, the inclusion of publicly traded companies popular among foreign investors were the most notable escalation and sparked selloffs in the shares of the Deripaska-linked companies that were affected. The restrictions also prevent the companies from working with U.S. partners and lenders.

"Deripaska has been handed a major blow," Oleg Petropavlovskiy, a BCS Global Markets analyst, said by phone. “Sanctions will make it much more difficult for his companies to refinance this liability.”

Russia’s foreign ministry vowed a “tough response” to the sanctions, saying “no means of pressure can make Russia change course.”

‘Dragged’ Into Action

Criticism of Trump’s move was largely limited to accusations that the sanctions are too narrow in terms of the people targeted, that they’ve come too late to have much impact and that Trump could strengthen the public impact of the measures by speaking out more aggressively against Putin.

Ned Price, a former CIA officer who served as spokesman for the National Security Council during the Obama administration, said Trump didn’t "carry the ball forward with punitive measures until recently" and that Russians would notice he was essentially "dragged into these steps" by Congress. Moreover, Price said, the ultimate impact of the sanctions would be blunted because those targeted had months to prepare by removing assets and taking measures to protect their financial interests.

"It’s an important symbolic move but the practical effect on these oligarchs will be minimal," Price said.

‘Closer to the Kremlin’

Andrey Kortunov, head of the Russian International Affairs Council, a research group set up by the Kremlin, said the U.S. moves could backfire by bolstering support for Putin.

“This means these people will become even closer to the Kremlin because they have nowhere else to go,” Kortunov said. “People here understand the administration wasn’t the initiator of this, that they’re under huge pressure from Congress and some in the bureaucracy who are forcing Trump to make decisions he doesn’t want.”

Yet Jimmy Gurule, a professor at Notre Dame Law School who studies economic sanctions, said the Friday move suggested a shift in the administration’s approach. While Trump had previously maintained the threat of economic sanctions would be enough to influence Russia’s behavior, the penalties suggest he had concluded more direct action was necessary.

As his administration toughens its stance against Moscow, Trump himself has continued to hold out the possibility of a detente. As recently as March 20, Trump and Putin discussed holding a summit at the White House, a revelation administration officials admitted after the Kremlin revealed the U.S. president had invited the Russian leader to Washington.

Putin Call

Trump congratulated Putin on his victory in last month’s presidential election during their phone call, without first reviewing written guidance from White House advisers that the Washington Post said included specific advice not to congratulate the Russian leader. Trump later described the call as “very good” and said he planned to meet with Putin “to discuss the arms race, which is getting out of control.”

The latest moves also didn’t include restrictions on trading in Russia’s sovereign debt, an area where the Kremlin is highly dependent on foreign investors. In January, the Treasury said sanctions in that area would be too disruptive to global markets and weren’t under consideration.

"What the administration is doing is bare minimum to keep up appearance that they’re tough on Russia and what they’re supposed to do by law, but there’s no clear policy or strategy," said Alina Polyakova, a fellow at the Brookings Institution. "If they’re serious about actually imposing the costs, will need a more coherent coordinated approach."

Pompeo and Bolton

She said that some former Obama officials had, with hindsight, expressed regret over their response to evidence Russia was hacking the 2016 election.

The Trump administration’s more aggressive approach -- even as the president himself continues to profess his interest in building a relationship with Putin -- can be attributed to a unique confluence of factors, Polyakova said. Those include his decision to tap CIA Director Mike Pompeo and former United Nations Ambassador John Bolton to lead the State Department and NSC.

"For the first time in a long time, there’s a bipartisan consensus there needs to be a more hawkish Russia policy," she said. "And if you look who Trump has actually appointed -- Pompeo coming in, Bolton coming in -- these are individuals much more hawkish than the people who proceeded them."

The rare bipartisan praise for Trump’s moves suggested that on this issue at least, he is winning over some critics who have assailed him for doing too little to confront Moscow since taking office in January 2017.

“Today’s announcement gives me confidence that the White House has finally turned the corner in the sense that the expulsion of Russian diplomats and or intelligence agents mattered but it was largely symbolic,” Kupchan said, adding that he has “more confidence president trump is finally ready to push back against Putin.”

©2018 Bloomberg L.P.

Bloomberg
Stay Updated With U.S. Elections News On BloombergQuint