全球智库信息集成服务系统

Introduction

Congress is slowly ratcheting up the pressure on two popular targets: the Kremlin and U.S. President Donald Trump’s well-advertised desire to “get along” with Russia’s President Vladimir Putin. The political logic is all too easy to understand. Anger and distrust toward Russia crosses party lines in Washington, and there has been no softening in Moscow’s increasingly assertive foreign policy. Making matters even more politically fraught are Trump’s reluctance to offer meaningful criticism of Russian malign activities, his professed skepticism about Russian interference in the 2016 U.S. presidential election, and his frequent attacks on the U.S. intelligence community, key U.S. allies, the North Atlantic Treaty Organization (NATO), and the European Union (EU). It is hard to recall any precedent for such an enormous gap in the views of the commander in chief, career national security officials, and influential members of Congress on an important national security issue.

Against that backdrop, many in Congress have come to the conclusion that tougher sanctions on Russia are in order, if only to box in the Trump administration. In the words of Senator Robert Menendez, the ranking Democrat on the Senate Foreign Relations Committee, “Trump’s willful paralysis in the face of Kremlin aggression has reached a boiling point in Congress.” Congressional activism on U.S. policy toward Russia will almost surely be a strong check on the executive branch’s freedom of maneuver during Trump’s remaining time in office.

This paper seeks to evaluate the effectiveness of the existing sanctions program while identifying possible directions for future action by Congress and the executive branch. It offers a short review of the main lessons of the past five years and potential goals for the next phase of the program.

Waiting for a Trigger

The impetus for renewed congressional action is not yet in place, despite the mid-February reintroduction of bipartisan sanctions legislation entitled the Defending American Security from Kremlin Aggression Act (DASKA). The new chairman of the Senate Foreign Relations Committee, Senator James Risch, has stressed that his “repertoire does not include sparring publicly with the president of the United States” and has not yet scheduled public hearings on new sanctions proposals. Nor does Senate Majority Leader Mitch McConnell seem eager to pick a fight with the Trump White House over new Russia sanctions.

The next steps by Congress will depend largely on events in the U.S. political domain. Congressional moves on Russia have tended to follow developments emanating from the Trump/Russia investigation or damaging press accounts, rather than new revelations of Russian malign activities. A case in point is the hurried, nearly unanimous passage of the Countering America’s Adversaries Through Sanctions Act (CAATSA) in the wake of Trump’s clumsy handling of his first face-to-face meeting with Putin at the Hamburg G20 summit in July 2017. Trump’s acceptance at that meeting of Putin’s flat denials about Russian interference in the 2016 U.S. presidential election and overly credulous eagerness to set up a cybersecurity working group ignited bipartisan political anger. A similar dynamic nearly derailed administration efforts to delist companies owned by Russian CEO Oleg Deripaska, following press reports about the unusual lengths that Trump has gone to shroud his discussions with Putin. For the time being, a trigger for renewed action in Congress is conspicuously missing.

Part of the unenviable challenge before Congress is how best to formulate effective sanctions that are tied to specific malign activities, such as election interference or Russian aggression against neighboring countries. Many of the punitive moves aimed at Russia since 2016 have been about retaliating for Russian interference in the 2016 election and hemming in the White House in its pursuit of accommodation with the Kremlin, rather than measures designed to affect Putin’s calculus on a specific issue. Other actions are tied to Russian external behavior such as support for the Assad regime in Syria.

This complicated landscape points to the need for a renewed focus on first principles. Prioritization of objectives as part of a comprehensive U.S. policy on Russia, deconfliction of overlapping sanctions regimes targeting Russia, focused messaging, and close coordination with allies are all essential to improve policy effectiveness. An extensive conversation about the potential second- and third-order effects of an increasingly unilateral U.S. approach on important alliance relationships is also needed.

Given the complex and multifaceted nature of DASKA, a period of intense review and evaluation would be beneficial. The fact that a companion House of Representatives version of the bill has not yet been introduced pending an internal review of the effectiveness of past sanctions efforts suggests that there is time for a broader conversation. A proper exchange with important U.S. allies and other stakeholders, a possibility explored in greater detail below, is all the more critical in light of the huge question marks surrounding the Trump administration’s approach to Russia and the fact that past sanctions efforts have yet to alter the Kremlin’s risk calculus.

A Shifting Framework for Post-2014 Sanctions . . .

The original intent of the Western sanctions effort against Russia that began in 2014 was to impose significant costs on the Kremlin for its aggression against Ukraine, to deter future Russian belligerence, and to support diplomatic efforts to de-escalate the crisis. An economy of Russia’s size and systemic importance had never previously been targeted with such severe, multilateral sanctions tools. By prioritizing unity with the European Union and other allied governments such as Japan, the U.S. and European architects of the sanctions effort sought to create a program that would be inherently more effective and durable. The program also sought to inflict greater pain on Russia and its leaders than on the West, while minimizing the risk of possible spillovers for the global economy and the international financial system.

The program was widened substantially after the shootdown of a Malaysian Airlines passenger jet over eastern Ukraine in July 2014. So-called sectoral sanctions were imposed against major Russian energy firms, financial institutions, parastatal organizations, and state-owned corporations. Among other things, these measures restricted access to global capital markets, which had served as a major funding source until that point. According to former State Department official Peter Harrell, the program’s main goal was to “forc[e] large Russian corporations to seek emergency funding from the Russian government and [draw] down Russia’s sovereign reserves.” Sanctions, combined with a drop in oil prices, put pressure on the ruble in late 2014; the Russian government burned through roughly one-quarter of its reserves while unsuccessfully defending the currency. (The authorities eventually surrendered to the inevitable and adopted a free float, leading to a 43 percent devaluation of the ruble.)

Sanctions against the Russian energy sector, the Kremlin’s main source of revenue, were concentrated on constraining the country’s long-term production potential. The United States and the European Union restricted Western participation in projects involving onshore unconventional, deepwater, and Arctic exploration. A carve-out for ongoing Russian oil and natural gas exports avoided creating supply disruptions or undermining the stability of the global economy. Asset freezes and travel bans were imposed on regime-linked figures directly involved in the undeclared war in Ukraine. A policy of targeting Putin’s so-called cronies sought to promote cleavages inside the Russian regime and between the Kremlin and the Russian people. Sanctions against the Russian defense industrial complex and arms export sector froze a wide array of dealings with Western counterparts.

As the conflict in Ukraine unfolded, more extreme measures were intentionally kept in reserve to foster uncertainty in the minds of top Russian officials about just how far the West might be prepared to go in response to Russian adventurism. Complementary diplomatic efforts focused on the Minsk agreements between Kyiv and Moscow, which provided a potential road map for military de-escalation and a lasting political settlement. Officials from then U.S. president Barack Obama’s administration and EU representatives emphasized publicly and privately that implementation of the Minsk agreements could lead, in relatively short order, to sanctions relief for Moscow. Unfortunately, high-level dialogue with the Kremlin basically went nowhere. By autumn 2016, it appeared that the Russian side hoped that it might get a better deal from a Republican administration.

Advocates of tough-minded policies toward Moscow were deeply disturbed by reports during the chaotic presidential transition and early months of the Trump administration that senior U.S. officials had contemplated lifting sanctions, perhaps as part of a clumsily conceived grand bargain with Moscow on Syria, Iran, and China. Congress responded in short order with near-unanimous approval of CAATSA, which both codified existing sanctions and expanded them modestly. CAATSA also required congressional review of any presidential moves to waive or remove sanctions—a reflection of unease about the Trump administration’s accommodationist approach to Russia as well as unhappiness that the Obama administration had used sanctions relief as a bargaining chit to reach a nuclear deal with Iran. The legislation also created secondary sanctions for transactions with the Russian defense and security sectors, investments in Russian oil and gas export pipelines, and other activities. While these aspects of CAATSA were overshadowed by the welcome news that Congress had effectively tied Trump’s hands on Russia policy, they opened up a potential rift with the EU, Japan, and other countries that have been crucial partners in the post-2014 sanctions effort.

. . . With Mixed Results

Judging the effectiveness of Western sanctions against Russia from a purely economic standpoint is a somewhat complicated challenge. Russia’s gross domestic product (GDP) shrank by 3 percent from 2014 to 2016. Former deputy prime minister Alexei Kudrin has suggested that sanctions shaved 1 percent off GDP in both 2015 and 2016. (Other economists point out that Russian quarterly GDP growth rates had actually begun to decline in 2011, that is, well before the beginning of the Ukraine crisis.) There is also broad agreement that a dramatic fall in global oil prices in 2014 and 2015 was the main driver behind the Russian economic slump during that period.

Economic conditions stabilized rather quickly in 2016 amid a recovery in oil prices, and Russia returned to modest growth in 2017–2018. The economy benefited from a textbook policy response that stressed exchange rate flexibility, generous support for the banking system including the provision of emergency liquidity, and the selective use of fiscal stimulus. Ruble weakness, which was routinely touted by Western observers as a sign of the effectiveness of Western sanctions, turned out to be one of the Russian regime’s most effective tools.

Most of the pain of the adjustment, by design, was borne by Russian consumers, not the key pillars of the regime targeted by Western sanctions. Even though Western officials have been at pains to suggest that the program was not designed to hurt average citizens, they were hit hard by the devaluation of the ruble and the Kremlin’s counter-sanctions against Western food imports. The Kremlin cynically exploited the latter move and created confusion among the general public. (Opinion polls suggest that most Russians believe that the food sanctions were imposed by the West, not their own government.) Either way, the sanctions regime gave the Kremlin a ready-made explanation for poor economic performance as well as a rationale for import substitution policies, whose benefits accrued disproportionately to regime insiders.

To be sure, Western sanctions have caused lasting negative damage to Russia’s attractiveness to foreign investors and significantly constrained access to foreign capital for Russian firms. Persistent uncertainty about the outlook for Western sanctions and expanded state control over the economy throttled most sources of foreign investment. State-backed funding mechanisms and financial institutions have been able to take up some of the slack, increasing the dependence of well-connected business figures on the Kremlin and the state budget. The long-term effects on the lack of Western investment in unconventional oil exploration are yet to play out. The Russian private sector largely was forced to deleverage from Western sources of funding, which, somewhat paradoxically, led to substantial improvements in their balance sheets.

In the meantime, the Russian government has focused intently on rebuilding its defenses and limiting vulnerabilities to future shocks and sanctions. Russian oil production reached back-to-back record highs in 2017 and 2018, enabling the government to replenish its currency reserves, which now total roughly a half-trillion dollars and are back at pre–Ukraine crisis levels. The government is also successfully implementing a fiscal belt-tightening rule that earmarks a significant share of oil export earnings to national wealth funds.

The weak ruble provided a sizable boost to the Russian export sector as well as government efforts to eliminate its budget deficit. The 2018 Russian state budget ran a healthy surplus (2 percent) for the first time since 2011, thanks in part to a government-led austerity campaign. The profitability of Russian corporates, especially commodity exporters, soared, owing to the drop in ruble-denominated costs of production and operations. Ties to China, now the top foreign purchaser of Russian oil, expanded steadily in multiple realms.

The 2014 sanctions were based in part on a Western belief that, by putting pressure on the Russian economy and certain elites, important figures in the regime would then turn to Putin and ask for a change in course. Unfortunately, Russian elites are not equal in terms of access and influence. The most important ones are often the hardest to target with sanctions (in part because they have the fewest personal and financial connections to the West) and the ones Putin is best positioned to shield.

This state of affairs contains critical lessons for the future application of sanctions or other coercive tools of economic statecraft: it is not enough to create sanctions policy based on a theory about the macroeconomic effect of the proposed measure; it must also be based on a clear theory of the measure’s political economy effect.

The impact of the sanctions program on the Ukraine crisis is perhaps easier to identify. The threat of additional Western sanctions may have helped, at least on the margins, to deter further Russian aggression, ushering in a stalemate that has given the post-Maidan government in Kyiv valuable breathing room. As former U.S. sanctions coordinator Daniel Fried put it, “Had we done nothing, Russia might well have attempted to do still worse, such as trying to seize the Ukrainian city of Mariupol, pushing further west to create a land-bridge to Crimea, or opening new fronts in Ukraine.” Still, provocative Russian moves in the Sea of Azov in late 2018 have demonstrated that Moscow remains prepared to use hard-edged military tactics to throw the Ukrainians off-balance and test Western resolve.

Unfortunately, there is little evidence that the sanctions program has significantly altered the Kremlin’s risk appetite for activity beyond Ukraine. Indeed, since 2015 the Kremlin has mounted a broad-ranging global campaign of malign activities. These efforts include election meddling and cyber and information operations aimed at democratic processes in the United States, France, and other Western countries; an abortive coup attempt in Montenegro led by Russia’s military intelligence service, the GRU; offensive cyber activities, including the 2017 NotPetya ransomware attack and thwarted operations against the Organization for the Prohibition of Chemical Weapons and the World Anti-Doping Agency; a deadly confrontation near a U.S. special forces outpost in Syria in February 2018 involving Russian military contractors; a March 2018 attack on a former Soviet intelligence officer in the United Kingdom using a military-grade nerve agent; and covert attempts to interfere with the resolution of the long-running Greece-Macedonia name dispute. All the while, the Kremlin has also backed populist nationalist groups in several Western countries and pumped out vast quantities of disinformation via its sprawling propaganda apparatus.

Challenges to U.S.-EU Unity

Since 2014, U.S.-EU unity on sanctions has generally exceeded expectations. While some critics complain that Obama’s focus on preserving unity with the Europeans limited the depth and breadth of the sanctions regime, U.S. and EU officials wisely understood that more could be gained by coordinating efforts than by pursuing independent policy preferences. U.S.-EU cooperation withstood traditional Kremlin efforts to drive wedges, thwarted sanctions evasion on a major scale, and reinforced efforts on the diplomatic track to de-escalate the Ukraine crisis. From the very beginning of the crisis, Washington was sensitive to the realities imposed by the EU’s geographical proximity and sizable trade and financial links with Russia. (At its peak in 2012, EU-Russia trade amounted to €339 billion, more than ten times the trade between Russia and the United States.)

Nevertheless, technical gaps persist between the U.S. and EU approaches to sanctions. As Harrell has recounted, EU officials have been, for example, wary of legal challenges to freezes on the assets of companies and individuals. To avoid damaging legal reversals, the EU, by necessity, focused on targeting companies and individuals based on unclassified evidence that could be mustered in court or by virtue of targeted entities’ legal status, such as being state-owned. Likewise, U.S. and EU sanctions experts have tried to manage significant differences between U.S. and EU standards on issues such as ownership and control, which might be exploited in legal challenges. Given worries at the time about possible financial contagion amid brewing crises in Greece and elsewhere in the eurozone, officials have also opted not to impose blocking sanctions on large Russian financial institutions and various types of financial instruments and derivatives.

Every six months, usually with little fanfare or drama, EU leaders have routinely renewed the sanctions program. These decisions—and the consensus they require—have been helped by Moscow’s continued failure to implement the Minsk accords and by poorly timed Russian misdeeds, such as the November 2018 naval confrontation in the Kerch Strait. Germany has played a central role in stiffening European resolve, reminding Italy, Hungary, Greece, and Cyprus that blocking consensus on sanctions renewal would have major negative repercussions in other areas of their cooperation with Brussels. At the same time, EU member states and Asian governments have not been shy about protecting commercially lucrative cooperation with Russia. For example, U.S. energy firms are understandably frustrated that they were forced to abandon unconventional energy projects in Russia, while similar or nearly identical efforts involving European firms were grandfathered by EU member states. Similar protections were instituted for European financial institutions for certain types of transactions.

To some extent, these gaps are the inevitable result of different regulatory structures in Washington and Brussels and the gap between member state- and EU-level policymaking authorities. These issues have proven manageable but cannot be closed in full. They can be widened, though, and are likely to become more challenging as the U.S. sanctions regime becomes increasingly unilateral in nature. The situation is further complicated by the schizophrenic nature of U.S. sanctions policy in the first years of the Trump administration, as Congress and the president wrestle for control.

With CAATSA, the U.S. Congress has widened the gap between the United States and Europe on how to manage Russia’s malign activities and has doubled down on the theory that costs imposed on regime insiders and Kremlin-linked wealthy individuals will result in pressure from within to prompt the Kremlin to change its policy. The Trump administration has appeared to be, at best, of two minds on this theory. It met the CAATSA requirement to issue a report listing senior government officials and wealthy oligarchs by January 2018 with a comically ill-informed and unclassified list that was cut and pasted from the 2017 Forbes ranking of Russia’s 200 wealthiest businessmen. In general, the EU does not share this approach, preferring to focus on sanctions against people or entities involved in undermining Ukraine’s territorial integrity, sovereignty, and independence, or other malign Russian activities.

Despite the hastily published list of oligarchs, the administration did eventually target specific Kremlin-linked individuals and firms with severe sanctions. Of these, the most important was Deripaska and his vast empire that includes aluminum giant Rusal and its parent company, En+. These designations were significant and were made without meaningful prior consultation with European partners and, apparently, without a strong grasp of how sanctioning one of the world’s largest aluminum producers might impact global markets. Sanctioning En+ and Rusal immediately created significant disruption for European economies and supply chains. Beyond the immediate fallout, such as spikes in aluminum and alumina prices, it became apparent that high-end European manufacturers, such as in the auto industry, depend a great deal on Rusal, and these inputs cannot be replaced before validating alternative suppliers, a process that generally takes at least a year.

Faced with the reality that European partners could not be forced into accepting U.S. secondary sanctions that threatened key manufacturing sectors and workers’ livelihoods in a variety of countries, the administration quickly backed down. It issued a string of licenses to postpone implementation of the sanctions and eventually negotiated what looks to be a fairly toothless divestment agreement reducing Deripaska’s stake in and control of the firms in exchange for lifting the sanctions. (Various knowledgeable figures suggest that the agreement has granted the Treasury Department unprecedented transparency over these firms and will prevent Deripaska from running the show. This seems unlikely.) Early and frank communication with European counterparts could have prevented this embarrassing reversal.

Under CAATSA’s terms, Congress can vote to prevent sanctions relief, and a strong effort was made to block the administration’s plan to delist En+ and Rusal. European governments pushed hard to persuade Congress to go along with the divestment deal, providing detailed information that outlined the economic risks to Europe of the sanctions. Europeans may be forgiven for hoping that such arguments would carry weight with newly empowered congressional Democrats, who had previously argued against the administration’s withdrawal from the Iran nuclear deal by pointing to the necessity of staying aligned with Europe to improve the efficacy of sanctions. In this case, however, pervasive distrust of the administration on Russia—and poor outings from Treasury Secretary Steven Mnuchin explaining the proposal in the face of more pointed questioning than most Trump administration officials have been subjected to—led to a congressional rebuke. Almost 70 percent of House Republicans joined with Democrats to oppose sanctions relief, and eleven Republicans voted against the administration in a 57–42 Senate vote. Because sixty votes were necessary under Senate rules, the administration was still able to proceed with sanctions relief, but not before further worry about U.S. unilateralism had been sown among European allies and partners.

Although additional Russian bad behavior can provide a boost to U.S.-EU unity and joint action, much as it did in the wake of the poisoning of Sergei Skripal, a former Soviet military officer and double agent for the UK’s intelligence services, and his daughter in the UK in March 2018, it would be a mistake to take continued EU support for the sanctions regime for granted. Two years of U.S.-EU-tensions over issues such as climate change, Iran, trade, and European defense expenditures have thoroughly roiled the transatlantic relationship. U.S. rhetoric and threats to impose sanctions on the Nord Stream 2 pipeline project have gratuitously added insult to injury among German political leaders. (While few dispute Nord Stream 2’s negative implications for European energy security and Ukraine’s role as a transit country, the project is now at an advanced stage of construction; unilateral U.S. sanctions are not the appropriate tool to deal with it.)

The recent creation of a special purpose vehicle (SPV) for Iran to conduct trade without accessing the U.S. financial system illustrates the lengths to which Germany, France, and the UK are willing to go to support the Joint Comprehensive Plan of Action and to challenge the Trump administration’s threats of secondary sanctions. As former Treasury Department official Elizabeth Rosenberg has warned, Germany’s increasingly defiant stance on Iran may be a taste of its likely response to increased U.S. pressure on Nord Stream 2 and other trade with Russia. SPV-intermediated trade with Iran is likely to remain modest, circumscribed by relatively modest commercial interest. SPV-like techniques could, though, be used to support larger trade flows if the United States and Europe disagree on a sanctions regime where there is not only policy divergence (as with Iran) but also macroeconomically relevant divergence (as with Russia). Such a breakdown between the United States and Europe would, of course, deeply damage the specific sanctions regime in question, but it would also damage transatlantic relations and erode the United States’ leading role in global finance.

DASKA: A Grab Bag Proposal

DASKA and other legislation that are under discussion are part of a welcome effort to assert greater congressional control over Russia policy and to create a more comprehensive and powerful sanctions approach. A reintroduced version of the Defending Elections From Threats by Establishing Redlines (DETER) Act, co-sponsored by Senators Macro Rubio and Chris Van Hollen, would seek to prevent Russia and other governments from interfering in U.S. elections by imposing a series of mandatory sanctions. At the same time, DASKA looks like a grab bag of competing proposals, concepts, and reporting requirements. In that respect, it bears a close resemblance to the d