Sanctions on Russian debt are called a ‘first salvo’ that sends a message

The Biden administration on Thursday barred US banks from buying newly issued Russian government debt, pointing to the deployment of a major weapon in the intense conflict in Moscow with Washington – threatening Russia’s access to international finance.

Were part of the debt restriction New measures against Russia There are major restrictions on dozens of institutions and individuals and the expulsion of 10 diplomats from the Russian Embassy in Washington. The move aims to pressure Moscow to take advantage of Russia’s weak economy to disrupt American political life and Ukraine in its campaign. Limitations on debt purchases, which apply to bonds issued by the Russian government after 14 June, may increase the cost of borrowing, limiting investment and economic growth within the Russian economy.

For now, this threat remains less than zero. According to the Russian central bank, the Russian government has taken a loan of about 41 billion dollars outside the country, which is a relative in the global economy. For comparison, the US Treasury issued a total of $ 274 billion in sovereign debt in the first three months of this year alone.

The government of Russia sells most of its debt domestically, and it finances its operations greatly through the sale of energy. According to Oxford Economics in London, American investors value only 7 percent of the Russian government’s rubles.

Nevertheless, as a symbolic move, experts said, the measures outlined by the Biden administration point to a willingness to engage in an incremental approach that could lead to stricter measures, such as Russia’s access to capital markets Strict curb, if Moscow does not moderate it. Activities.

“This step can, and cannot be seen as the final step of this process,” said Adnan Mazrei, a former official of the International Monetary Fund and now a senior fellow at the Peterson Institute for International Economics in Washington. . “Random, Hodgepoint sanctions policy may be over. This is going to be a process that is subject to calibration. “

Even moderately endangering Russia’s access to global markets, the Biden administration is similar to the strategy used by the United States to isolate Iran. The successful US administration has sought to pressure Iran to abandon its development of nuclear weapons capability and to support rebel forces in the Middle East by restricting its ties to the global financial system.

But Russia would be a far more difficult force to isolate.

The United States and its allies in Europe are usually aligned in their objectives on Iran, even European business interests Get access to the potentially huge Iranian market. Russia, by contrast, is a major supplier of energy in Western Europe. Russia sits at the door of the region, leading European leaders – particularly Germany – towards greater conflict.

Russia’s expert Simon Miles at Duke University said Russia’s access to international bond markets has to be “nibbled around the edges”. A meaningful hit would threaten Russia’s market for natural gas in Western Europe.

Previous sanctions have denied Russia access to certain types of food and technology. The latest package aims at Russia’s basic economic health as a pressure point.

“There are indications that the Biden administration wants to hurt it more,” said James Nixey, director of the Russia-Eurasia program at Chatham House, a London research institute. “This is just the first salvo.”

United States eventually Isolated Iran from the global financial system, Something that can be brought about in Washington is the US dollar World’s reserve currencyMeans of exchange in transactions around the planet. Any bank anywhere on Earth that handles trade for Iran is cut off from the international payment network and denied access to the dollar.

Russia has a very limited need to borrow money from abroad, followed by a rapid reduction in sanctions. Its interpretation of Crimea in 2014.

“We have had a period of austerity, fiscal austerity since that time,” said Alina Ribakova, deputy chief economist at the Institute of International Finance, a trade association representing international banks. “They prepared themselves.”

Thursday’s order on Russian debt only applies to US financial institutions, but it may prompt multinationals beyond the United States to reorganize the risk of transactions with the Russian government.

“It puts them on notice, if you like,” Mr. Nixie said. “Every company that is important in Russia is listening to it very, very carefully and with thought if it is a good idea, in terms of reputational or political risk, whether they continue to trade in the same volume that they are. “

Andrew E. Kramer Contributed to reporting from Moscow.

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