Page 10 - RusRPTSept19

When discussing the existing economic sanctions of the West against Russia as well as potential sanctions initiatives, one should consider the ‘true’ scale of economic assets held by Western businesses in Russia. If the US owns Russian investments worth mere $3.1bn, as implied by Central Bank of Russia’s data, it’s not entirely clear what constrains the US administration from tightening the sanctions. However, if those investments turn out to be at least $33–39bn (Germany/the US), the balance of potential foreign policy benefits and potential economic costs is tilted towards protecting businesses.
In January 2018, the US Department of Treasury told Congress in a report that potential sanctions against Russia’s sovereign debt carried too much risk for American investors, effectively recommending that these sanctions are not imposed. Russian credit rating agency ACRA estimated at the time US investors held around 10% of Russia’s sovereign debt, or $7bn. It was certainly not easy for the Treasury to sacrifice even such manageable amount of investments.
US real investments in the Russian economy are apparently much higher, and these are not portfolio investments. They can’t be easily and quickly withdrawn. If the sanctions are tightened dramatically, Russian authorities are capable, in theory, to respond by freezing or even expropriating the property of US companies in Russia – this option was reportedly discussed by the Kremlin in early 2018, on the back of new sanctions at the time. Thus, Western companies have much more at stake in Russia than it might seem at first sight.
2.2 Shrinking share of USD in Russia’s trade
Russia is acting on a pledge by President Vladimir Putin to shrink the role of dollar in international trade as tensions sour between Washington and Moscow.
The shift is part of a strategy to “de-dollarize” the Russian economy and lower its vulnerability to the ongoing threat of US sanctions. But while the central bank was able to quickly dump half of its dollar holdings last year, progress in trade has been slow due to ingrained use of the greenback for many transactions.
The share of euros in Russian exports increased for a fourth straight quarter at the expense of the US currency, according to central bank data. The common currency has almost overtaken the dollar in trade with the European Union and China and trade in rubles with India surged. The dollar’s share in import transactions remained unchanged at about a third.
10 RUSSIA Country Report September 2019 www.intellinews.com