Biden Imposes Sanctions on Russia, Restricts Buying New Debt

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Apr 15 2021, 6:03 AMApr 15 2021, 6:22 PMApril 15 2021, 6:03 AMApril 15 2021, 6:22 PM

(Bloomberg) -- The Biden administration imposed a series of new sanctions on Russia, including restrictions on buying new sovereign debt, in retaliation for alleged misconduct related to the SolarWinds hack and efforts to disrupt the 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 also 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 from June 14.

Russian bonds fell and the ruble dropped the most since December on the news.

“What President Biden is going to announce today, we believe, are proportionate measures to defend American interests in response to harmful Russian actions, including cyber intrusions and election interference,” National Security Advisor Jake Sullivan told CNN early Thursday. “His goal is to provide a significant and credible response but not to escalate the situation.”

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 just two days after President Joe Biden warned 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.

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Restrictions 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.

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 1.4% as of 2:50pm in Moscow.

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Kremlin spokesman Dmitry Peskov said new sanctions “wouldn’t facilitate” the planned summit but stopped short of saying they would derail it. He said Russia would reciprocate for any new limits but declined to comment on whether Biden warned Putin about impending measures in the call Tuesday.

Though they hit the market, debt restrictions aren’t expected to significantly hamper the Russian government’s ability to finance itself, since state banks can take up much of the slack, analysts said.

Still, limits on debt mark a serious escalation from a political standpoint and are likely to abort the planned presidential summit in the immediate future, said Fyodor Lukyanov, head of the Council on Foreign and Defense Policy, which advises the Kremlin.

“There is a desire to meet but the situation has severely deteriorated,” Lukyanov said.

Putin may respond by ratcheting up tensions over Ukraine with continued massing of troops on the border, setting back hopes of an end to the crisis, according to the analyst. “When it will reach an extremely dangerous point, that’s when they will meet to avoid the worst-case scenario,” he said.

In a potentially conciliatory gesture, the U.S. this week dropped plans to send two warships into the Black Sea after Russia warned the move would be “extremely provocative.” Kremlin spokesman Peskov said it would be “premature” to speak of de-escalation of tensions with Ukraine.

Elections, Hacking

The U.S. has been threatening to impose additional restrictions on Russia for months to punish the Kremlin for a litany of transgressions in recent years.

A U.S. intelligence community assessment has concluded with a high degree of confidence that Putin and the Russian government authorized and directed an effort to influence the 2020 election. Some of the planned measures are aimed at outlets controlled by Russian intelligence services and blamed for sowing disinformation during the 2020 campaign, according to one of the people. Others to be targeted include individuals and entities that operate outside Russia at the behest of Moscow.

The sanctions would follow a review ordered by Biden on his first full day in office into four key areas concerning Russia: interference in the 2020 election, reports of Russian bounties on U.S. soldiers in Afghanistan, the SolarWinds attack and the poisoning of Russian opposition leader Alexey Navalny.

The administration announced sanctions against Russian officials over Navalny last month but has so far held off on action in the other three areas.

Russia has repeatedly rejected accusations that it meddles in elections, poisons its critics or offered to pay bounties for the killing of American troops.

Those facing the next round of sanctions include individuals and entities blamed by the U.S. for enabling the Internet Research Agency, a Kremlin-linked troll farm that used a coordinated operation on social media in an effort to help Donald Trump’s presidential campaign in 2016.

Actions in response to the malicious SolarWinds cyber activity will target about half a dozen entities linked to Russian security services, according to one of the people. The U.S. is also poised to name the Russian Foreign Intelligence Service as the perpetrator of the campaign, the person said.

The attack by hackers who compromised widely used software by Texas-based SolarWinds Corp. breached more than 100 U.S. companies and nine government agencies before it was discovered by a cybersecurity firm.