NEW US SANCTIONS BILL AGAINST RUSSIA

Contents of the Bill

1. The most basic element of the bill is that it codifies existing US sanctions against Russia—including three executive orders tied to Russia’s aggression in Ukraine, one tied explicitly to Russia’s annexation of Crimea, and two tied to malicious cyber activities. By codifying the executive orders, the bill constrains the executive branch’s ability to remove any of the sanctions currently in place. Moreover, the bill spells out what the president must do in order to remove sanctions: submit a report to Congress explaining the rationale, including what the United States expects to receive in return. Within thirty days of the submission of such a report (sixty if it is submitted during summer), Congress can approve or reject the president’s decision to remove sanctions.
2. Current sanctions prohibit Western companies from providing goods or services to next-generation oil projects in Russia: specifically, Arctic offshore, deepwater, and shale projects. The bill expands US restrictions in two important ways. First, it brings projects in which Russian companies are involved regardless of where they are located under the purview of sanctions. That means Russian companies will be denied the opportunity to amass expertise in advanced drilling techniques by learning from Western partners. Second, the bill requires the executive branch to impose sanctions on foreign firms that make significant investments in next-generation Russian oil projects. This provision a classic case of secondary sanctions will discourage companies around the world from investing in Arctic offshore, deepwater, and shale oil projects in Russia, diminishing the risk that lost US business will be backfilled by foreign competitors. The bill prohibits US companies from investing in Arctic, deepwater and shale crude oil projects in which Russian firms have a 33% or more ownership or control stake.
3. As a response to Russia’s interference in the 2016 US election, the bill includes one provision that packs a major economic punch: mandatory sanctions on any “person” (i.e., individual or entity) “that engages in a significant transaction with a person that is part of, or operates for or on behalf of, the defense or intelligence sectors of the Government of the Russian Federation.” If the Treasury Department implements this provision aggressively, it will amount to a threat of secondary sanctions against any company around the world that buys substantial arms from Russia (which, as of 2016, accounted for roughly 8 percent of arms sales globally). This provision, therefore, not only represents the muscle of the bill on cyber deterrence but also advances strategic objectives by hindering Russia’s military modernization and incentivizing foreign militaries to diversify away from Russian arms purchases.
4. While most sanctions in the bill are mandatory, one important measure is discretionary: sanctions on investment in the construction of Russian energy export pipelines. If the Treasury Department opts to use this provision aggressively, it could threaten sanctions against any company that makes a significant investment in Nord Stream II.
5. Under current sanctions, American financial institutions cannot provide credit to the six largest Russian banks with maturity of thirty days or more. The bill tightens the debt maturity threshold to fourteen days.  Other measures included in the bill, are sanctions on the corrupt privatization of state-owned Russian assets.

Comments Austrian Federal Chancellor Christian Kern (SPÖ) and German Foreign Minister Sigmar Gabriel (SPD)

1. We cannot accept the threat of illegal extraterritorial sanctions being imposed on European companies that are participating in efforts to expand Europe’s energy supply network.
2. Political sanctions should not in any way be tied to economic interests. Threatening to impose penalties on companies in Germany, Austria and other European countries with regard to their business in the United States if they participate in, or fund, natural gas projects involving Russia such as Nord Stream 2, impacts European-American relations in a new and very negative way. This is about the competitiveness of our energy-intensive industries, and about thousands of jobs.
3. Europe’s energy supply network is Europe’s affair, not that of the United States of America
4. We decide who supplies us with energy, and how they do it, and we do so based on transparency and on free market principles.

Note

Just because Republicans and Democrats can agree on a sanctions bill against Russia doesn’t automatically mean that it’s a smart bill. Congress is certainly entitled to register its displeasure and be a full, proactive participant in the development of U.S. foreign policy. But the President of the United States, as the Chief Executive of the country's foreign policy, is also entitled to a certain degree of flexibility in order to search for diplomatic breakthroughs that may arise.

The Trump administration must be afforded the opportunity to look for deals, carry on a dialogue with adversarial nations and competitors, and retain diplomatic carrots. Can we really anticipate Russian cooperation in the future if all that the Secretary of State can offer to Moscow is a promise that he’ll work very, very hard to convince Congress to ease the sanctions—and that maybe that venture will be successful? Leveraging the carrot is often as important to successful diplomacy as wielding the stick. If the carrot is eaten prematurely, then freedom of maneuver is closed off considerably. The last thing that Congress should do is throw another rock into the turbulent waters of U.S.-Russia relations