Russians Not Turning on Kremlin Even as Latest US Sanctions Bite

The latest U.S. sanctions imposed on Russia earlier this month targeting two dozen Kremlin insiders and oligarchs close to Vladimir Putin and their companies are proving more painful than had been expected, say analysts. But they’re doing nothing at this stage in turning ordinary Russians against the Kremlin or undermining the Russian leader’s overall popularity.

 

The rouble suffered its worst week in four years in the immediate wake of the April 6 announcement of new sanctions on 24 super-wealthy Russians and 14 companies, suggesting the additions to the sanctions blacklist could have major impact on the Russian economy.

And that appears to be the case with the fortunes of the blacklisted Oleg Deripaska. He is the owner is Rusal, one of the world’s largest aluminum producers, which until the sanctions started to bite exported 82 percent of its production.

A majority of analysts and economists polled by Reuters Saturday said the latest round of U.S. sanctions against Moscow will likely limit interest rate cuts planned by Russia’s central bank, thereby slowing the country’s economic recovery, despite rising oil prices.

Retaliation

“The introduction of sanctions drastically raised uncertainty for the business environment in the Russian economy,” said Kirill Tremasov, a former Russian official and now head of research at Loko-Invest, a financial brokerage. The threat of counter-measures by the Russian parliament isn’t helping to calm turbulence, he added.

The Kremlin says the April round of sanctions, which Washington imposed after accusing Russia of “malign activities,” are unlawful and Russian officials have warned they will retaliate.

In mid-May, the lower house of the Russian parliament is set to consider legislation detailing retaliatory steps, including suspension of space and nuclear cooperation and a ban on importing U.S. agricultural produce, pharmaceuticals, tobacco and alcohol.

Some Russian lawmakers also want to suspend the intellectual rights to software developed by U.S. individuals or companies that’s used on Russian territory.

Impact on investment

When the West imposed its first sanctions on Russia, after Moscow’s annexation of Crimea and fomenting separatism in eastern Ukraine, the effect was limited, according to analyst to Nigel Gould-Davies of Britain’s Chatham House, Russia found ways to adapt.

“But America’s latest financial sanctions, announced on 6 April, are a game-changer,” he argued in a recent commentary, noting the latest sanctions have created bigger uncertainty.

“No one knows who might be targeted next,” he continued. “Russia faces a new systemic risk: expectations about U.S. sanctions are now as important as the oil price for assessing its prospects.”

The sanctions, he and other analysts argue, deter counter-parties and agencies handling payments from doing business with the blacklisted Russians, including the aluminum king Deripaska and Vladimir Bogdanov, CEO of Russia’s third largest oil company. And by targeting publicly traded companies the sanctions have stripped away protecting corporate assets by listing on foreign stock exchanges, including London, New York or Hong Kong.

The sanctions have already impacted Deripaska by locking Rusal out of the global aluminum market, roiling the market and prompting massive prices hikes. The U.S. Treasury has now said it will consider lifting sanctions on Rusal, if Deripaska divests from the company and relinquishes control, something the industrial titan has hinted he may have to do.

UK sanctions

This week, more pressure will be applied on the Russian elite, when British lawmakers start the process of introducing legislation that will block Russian oligarchs and officials linked to human rights abuses from doing business in the country and buying property in Britain.

“If foreign oligarchs and kleptocrats who’ve committed crimes or abused human rights suddenly find they can’t buy property or stash their cash in the UK, it’s going to hurt,” said British Conservative lawmaker John Penrose.

Impact on Putin?

But while the Russian elite is being roiled by U.S. sanctions targeting oligarchs, disrupting their businesses and impacting foreign investment more broadly in the country, it remains unclear whether they’re denting Putin’s popularity among Russians or will in the future.

The Kremlin has been able to maintain price stability with subsidies, cushioning the impact of sanctions by dipping into reserves and the increased revenue from oil price rises.

Analysts remain divided about whether sanctions will force the Kremlin to curtail what Washington views as aggressive foreign activity, such as the alleged poisoning in Britain of former Russian double agent Sergei Skripal, an attack Moscow denies it had a hand in.

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