Russia responded to threat of sanctions by moving more than $100 billion in Treasury bonds out of the U.S.
March 17, 2014
The people of Crimea rejected the coup government in Kyiv and voted to split from Ukraine and join Russia. In response to the referendum held Sunday, the United States and the European Union will announce “tough diplomatic and economic sanctions against Moscow as early as today,” according to ABC News. The U.S. and the EU consider the vote illegal and unconstitutional.
Obama called Vladimir Putin and told him the will of the people of Crimea will “never be recognized by the United States and the international community.” He said the U.S. and its partners in the EU and the United Nations are “prepared to impose additional costs on Russia for its actions.”
Those costs will undoubtedly fall on the people of Europe who will suffer in the wake of economic sanctions. EU bureaucrats and Western politicians, however, have announced they are willing to make Europeans suffer in order to punish Russia. “The West could also suffer costs if Russia cuts off energy supplies to Europe and further squeezes the Ukrainian economy,” The Washington Post reports today. “But Western officials say that is a price they are willing to pay and have pledged economic support to Ukraine.”
Europe imports 30 percent of its natural gas from Russia and the economic connections between the two are complex. “The EU is, by far, Russia’s leading trade partner and accounts for about 50 percent of all Russian exports and imports,” writes Gilbert Mercier. “The EU is also the largest investor in the Russian economy and accounts for 75 percent of all foreign investments in Russia.”
Russia responded to the threat of economic sanctions last week by moving more than $100 billion in Treasury bonds out of New York. “We hold a decent amount of Treasury bonds — more than $200 billion — and if the United States dares to freeze accounts of Russian businesses and citizens, we can no longer view America as a reliable partner,” Sergei Glazyev, an advisor to Russian President Vladimir Putin, told Baron’s.
“We would find a way not just to reduce our dependency on the United States to zero but to emerge from those sanctions with great benefits for ourselves,” Glazyev said on March 4. He added the move to impose harsh sanctions on Russia would result in an economic crash in the West. “An attempt to announce sanctions would end in a crash for the financial system of the United States, which would cause the end of the domination of the United States in the global financial system,” he said.
On March 10, Russia said it was preparing a bill that would freeze the assets of European and American companies operating in Russia if the West imposed sanctions. A large number of corporations would be impacted by the measure, including but hardly limited to PepsiCo, Coca-Cola, General Motors, Ford, Caterpillar, IBM, Microsoft, Procter & Gamble, ExxonMobil, Chevorn, Boeing, ConocoPhillips, and many others doing business in Russia.
Business leaders are concerned about the prospect of economic warfare. “An escalation would be economic madness,” Jean-Guy Carrier, secretary general of the International Chamber of Commerce, told McClatchy. “We don’t like sanctions on principle. They are a very disruptive instrument in dealing with political subjects, but if they come about, the type of sanctions should be as targeted as possible,” Carrier said. “If used, they should be on individuals. Across the board sanctions are quite disruptive to economies.”
For now, the West has decided to target individuals with sanctions. On Monday, EU apparatchiks slapped travel bans and locked down the assets of Russians and Crimeans involved in the move to secede from Ukraine and its junta government. Two anonymous diplomats, according to the Associated Press, say the sanctions target thirteen Russians and eight Crimeans, although a breakdown of the nationalities has not been officially announced.
Politicians in the United States, however, are willing to play Russian Roulette with a fragile world economy. “Well, I think economic sanctions are a very important step,” said Arizona Senator John McCain on Sunday. “Identify these kleptocrats and — look, Russia is a gas station masquerading as a country. Its kleptocracy, its corruption, it’s a nation that’s really only dependent upon oil and gas for their economy. And so economic sanctions are important.”
Congress will undoubtedly take up sanctions when it returns from recess on March 24. Republican Senator John Hoeven of North Dakota told The Wall Street Journal he believes Congress will pass a bill imposing sanctions, possibly including an effort to hamper Russia’s ability to export goods, including gas Europeans depend on. “If we do that in a concerted way with our allies, we can make this painful to Russia,” Hoeven said on Sunday.
It will ultimately make life painful for average Europeans as well.