U.S., U.K. Weigh Russia Sanctions, Possibly Targeting Debt

The U.S. and U.K. are weighing additional penalties against Russia over the use of chemical weapons, with options ranging from sanctions against oligarchs to the extreme step of targeting the nation’s sovereign debt, according to people familiar with the matter.

British officials plan to push for the Organization for the Prohibition of Chemical Weapons to continue to pressure Russia to provide answers over its use of banned substances, and will raise potential measures with key European allies, including France and Germany, in the coming weeks, according to one of the people.

The Biden administration announced its first sanctions against Russia on Tuesday, punishing the Kremlin for the poisoning and jailing of opposition leader Alexey Navalny. The penalties mirrored those imposed by the European Union and the U.K., mainly targeting senior Russian law enforcement officials and others allied with President Vladimir Putin.

Russian bonds snapped a four-day rally, lifting the yield 11 basis points to 6.68% as of 1:08 p.m. in Moscow Friday. Buoyed by climbing oil prices, the ruble traded little changed at 74.69 per dollar after slipping 1% on Thursday.

The U.S. is expected to closely adhere to a 1991 chemical weapons law and follow-up with a second, more extensive round of sanctions unless Russia meets certain conditions, according to people familiar with the matter. Those include assurances it will refrain from the use of such weapons and allow inspections of suspected chemical weapons sites.

The penalties were the latest sign of deepening tensions between Washington and Moscow, and the relationship could deteriorate further if Russia retaliates or the U.S. escalates its sanctions.

All of the people spoke on condition of anonymity owing to the sensitivity of the matter. Communications aides at the White House National Security Council and the U.K. Foreign Office had no immediate comment Thursday.

British officials are in discussions with U.S. counterparts about new measures. One trigger for additional steps would be if Russia continues to stonewall an investigation into Navalny’s poisoning, one person said.

U.K. Foreign Secretary Dominic Raab on Thursday urged Russia to adhere to its obligations under international law.

“These attacks are unacceptable. We urge Russia to investigate, adhere to its obligations under the Chemical Weapons Convention,” Raab tweeted.

U.S. Secretary of State Antony Blinken sent a similar message Thursday.

The U.S. could increase pressure on Russia with sanctions on oligarchs with powers under the Magnitsky Act, which authorizes the president to sanction individuals for human rights violations or corruption, the people said.

But if Russia is again found to commit a major transgression of the international ban on chemical weapons, President Joe Biden would consider imposing sanctions on the nation’s sovereign debt if it could be done in cooperation with Europe, two of the people said.

Kremlin spokesman Dmitry Peskov reiterated Friday Russia had destroyed all its chemical weapons and isn’t violating the treaty. Asked about the prospect of new sanctions, he said, the government “is working through various scenarios to protect the interests of our country, our citizens and our business.” Russia hopes its tycoons won’t be targeted, he added. The Foreign Ministry said Friday it would impose visa bans on U.S. officials soon to retaliate for the limits Washington put in place this week.

The Treasury Department under former Secretary Steven Mnuchin in 2018 warned of global financial market turmoil if Russia’s sovereign debt market were sanctioned, saying it could destabilize markets because of how deeply tied the Russian market is to global indexes.

But others say that Russia has moved away from issuing dollar-denominated debt toward the euro, meaning that negative spillovers could be smaller than previously anticipated. That view is shared by Daleep Singh, a former Obama-era Treasury official, who is now a deputy on Biden’s National Security Council.

In 2019, as a witness during a congressional hearing on Russia, Singh supported restricting purchases of Russian sovereign debt to protect U.S. national security interests. At the time, he said that damage to global markets resulting from prohibiting purchases of Russian debt would not be as significant because global investors have reduced their overall exposure to the nation since the Obama administration started sanctioning Russia in 2014.


By Saleha Mohsin, Alberto Nardelli, and Jennifer Jacobs, March 4, 2021, published on Bloomberg

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