Biden Sanctions Russia, Restricts Buying New Debt After Hacking
16 Apr 2021

President Joe Biden ordered fresh sanctions on Russia, including restrictions on buying new sovereign debt, in response to allegations that Moscow was behind a hack on SolarWinds Corp. and interfered with last year’s U.S. election.

The new measures sanction 32 entities and individuals, including government and intelligence officials, and six Russian companies that provide support to the Russian government’s hacking operations. The U.S. is also expelling 10 Russian diplomats working in Washington, including some intelligence officers.

The Biden administration is barring U.S. financial institutions from participating in the primary market for new debt issued by the Russian central bank, Finance Ministry and sovereign wealth fund. Those limits would take effect starting June 14.

Russian bonds fell and the ruble dropped the most since December on news of the impending penalties, although the ruble and Russian bonds recovered some of their losses after the sanctions were announced.

Biden plans to address his Russia policy in an address at 4:30 p.m. White House Press Secretary Jen Psaki said Thursday that the administration’s response was proportionate to Russia’s actions and that the U.S. goal isn’t to “escalate” with Russia.

“Our objective here is to impose costs for what we feel are unacceptable actions by the Russian government,” Psaki said.

Psaki said Biden wants “stable and predictable” relations with Russia. But she added: “This continues to be a difficult relationship. There are adversarial components of it.”

The sanctions reflect an attempt by the U.S. to balance the desire to punish the Kremlin for past misdeeds but also to limit the further worsening of the relationship, especially as tensions grow over a Russian military buildup near Ukraine.

The latest moves come days after Biden warned President Vladimir Putin the U.S. would defend its interests but also offered the possibility of a summit meeting in the coming months, drawing a cautiously positive response from Moscow. Biden, who warned Putin of U.S. actions this week, wants to meet with the Russian leader to prevent relations between the two countries from deteriorating further, a U.S. official said.

Several of the sanctioned entities have links to Yevgeny Prigozhin, a Russian businessman dubbed “Putin’s Chef” for his Kremlin catering contracts and close ties to the president. He controls the Wagner group of mercenaries that fought in Syria and Libya, and deployed to hotspots in Africa and Latin America in support of Kremlin policy.

The U.S. Treasury has already sanctioned media outlets and other companies linked to Prigozhin in December 2018 and last September. Prigozhin has been under U.S. sanctions since late 2016. Notably, the new measures didn’t target any new tycoons, something that many in Moscow had feared.

Debt Limits

Restrictions, like those announced Thursday, blocking U.S. investors from buying ruble-denominated Russian government debt have long been seen as the “nuclear option” in financial markets, where the bonds, known as OFZs, have been a popular investment. Foreigners now hold about a fifth of that debt, worth roughly $37 billion.

But restricting the limits to new debt sales, and not trading on secondary markets, will blunt the impact. Russia’s 10-year local bonds fell the most since March 2020 in early trading in Moscow, before paring that decline, while the ruble, which had rallied on the news of the Biden-Putin phone call, was down 0.7% as of 4:45pm in Moscow.

An executive order signed by Biden gives additional authorities to act against Russia that the U.S. isn’t exercising immediately and would prefer not to have to use, an administration official said.

“The era of impunity for Moscow’s assault on the rule of law is over,” House Speaker Nancy Pelosi said in a statement.

Republican Senator Mike Braun of Indiana called it the right move, saying Russia is “out to disrupt.”

But some lawmakers said Biden should have gone further.

“While these sanctions are a necessary step, I am concerned they will ultimately fail to establish a credible deterrent,” Representative Michael McCaul, the top Republican on the House Foreign Affairs Committee, said in a statement.

Russia said it summoned the U.S. ambassador for what Foreign Ministry spokeswoman Maria Zakharova said would be a “difficult conversation” after the announcement. She vowed an “inevitable” response from Russia but didn’t elaborate on what measures would come.

But U.S. Ambassador John Sullivan said in a statement that the meeting was requested by the U.S. and was “professional and respectful.”

“We have been clear that we desire a relationship with Russia that is stable and predictable,” Sullivan said in a statement. “However, we have also been clear — publicly and privately — that we will defend our national interests and impose costs on the Russian government for its actions that seek to harm our sovereignty, or our allies, partners and values.”

Even as Russia vowed to retaliate, the Kremlin signaled it was ready to limit the damage and remained open to the White House’s offer of a presidential summit.

“The sanctions were moderate and I hope the reaction will be,” said Andrey Kortunov, head of the Kremlin-founded Russian International Affairs Council. “Russia’s response shouldn’t hamper the summit. People understood that sanctions were inevitable.”

By Alberto Nardelli, Nick Wadhams and Jennifer Jacobs, Bloomberg, 15 April 2021

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