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U.S. Says Russia Sanctions Vindicated As Ruble Tumbles

December 16, 2014
by Carl Schreck and Luke Johnson

WASHINGTON -- As Russia's currency plunges, the Obama administration is delivering a message about the impact of Western sanctions: We told you so.

'We have suggested the longer the sanctions regime is in place, the more isolated the Russians would be and the greater the impact it would have on the broader Russian economy," White House spokesman Josh Earnest said on December 16.

"And every week and month that goes by that the sanctions regime is in place, we see that the toll that is being taken by the Russian economy grows,' he added.

Earnest's comments came as the Russian ruble fell in value against the dollar and the euro earlier in the day.

The White House launched a wave of financial sanctions targeting top Russian officials and companies after the Kremlin's annexation of Crimea in March and has repeatedly insisted the punitive measures are exacting a cost on Russia, even as Western nations accused Moscow of continuing to supply troops and materiel to pro-Russian separatists in eastern Ukraine.

Analysts attribute pressure on the ruble, which has shed around 50 percent of its value against the dollar this year, and the Russian economy largely to plummeting oil prices.

Russia's central bank this week projected the economy could shrink next year by 4.5 percent should the price of oil average $60 per barrel. The price for benchmark Brent oil closed below that threshold on December 16, its lowest level since July 2009.

But Obama administration officials stressed on December 16 that the sanctions regime is contributing to Russia's deepening economic woes as well.

'The combination of our sanctions, the uncertainty they've created for themselves with their international actions, and the falling price of oil has put their economy on the brink of crisis,' said Jason Furman, chairman of the White House's Council of Economic Advisers.

'Constructive Moves'

It is far from clear whether the financial squeeze being felt by the Kremlin will prompt Russian President Vladimir Putin to change course.

But U.S. Secretary of State John Kerry said on December 16 that Russia has made "constructive moves" in recent days in the standoff over Ukraine, where Western governments accuse Moscow of backing the rebels in eastern Ukraine.

Kerry cited "the withdrawal of certain" people and the "calm that is in fact in place in a number of places" in eastern Ukraine but did not elaborate.

U.S. State Department spokeswoman Jen Psaki told reporters in Washington that the United States welcomes reports "that violence has decreased markedly over the last few days in eastern Ukraine."

"This is a positive step and an opportunity to advance the prospects for a lasting political solution," Psaki said. "But I don't want to overstate that, nor do we, and that's one of the reasons why [Kerry] also reiterated ongoing concerns we have."

Speaking in London, Kerry said the Western sanctions against Russia are "clearly intended to invite President Putin to make a different set of choices."

'These sanctions could have been lifted months ago, these sanctions could be lifted in a matter of weeks or days,' he said.

Meanwhile, Earnest told reporters on December 16 that Obama will sign a bill passed unanimously by Congress last week that introduces new sanctions against Russia but gives the White House the authority to waive them.

Putin will have an opportunity to address the economic turmoil and sanctions in his annual televised press conference slated to be held on December 18. In a confrontational state-of-the-union speech earlier this month, Putin accused unnamed "speculators" for the ruble's slide.

Steven Pifer, a former U.S. ambassador to Ukraine, said the likelihood of Russia budging in the Ukraine impasse could depend on how the Kremlin perceives the goal of Western sanctions.

If top Russian officials see the removal of the sanctions regime as part of the solution to its current economic troubles, "that should be an incentive to get the Kremlin to change its course on Ukraine,' Pifer, now a senior fellow at the Brookings Institution, told RFE/RL.

"If the Russian leadership has bought into their own line that the point of sanctions is simply to bring down the Putin government, then it's going to be hard to get a change in policy," he said.

Sanctions have cut off major Russian companies -- including state-controlled Rosneft, Russia's largest oil company -- from access credit from Western banks. The Russian oil giant is in need of cash to meet debt payments after purchasing rival TNK-BP for $55 billion in 2013.

In a December 16 tweet, Putin's former finance minister, Aleksei Kudrin, described a $10.8 billion in ruble-denominated bonds issued December 12 by Rosneft and financed by Russia's central bank as an "opaque loan" that "negatively heated up the market."

Source: http://www.rferl.org/content/russia-ruble-sanctions/26747558.html

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U.S. Says Russia Sanctions Vindicated As Ruble Tumbles