What Russia is doing to counter the new round of American sanctions

Note: The following is an edited translation of a commentary from the Chinese-language "Commentaries on International Affairs."

Russia's President Vladimir Putin said on Wednesday that the new American sanctions against Russia have been "a counterproductive and meaningless move." He called on the United States government to acknowledge that its sanctions policy is bound to fail, and that Russia-U.S. relations should return to one of normal cooperation. President Putin's comments came a day after the United States launched its latest round of sanctions targeting multiple Russian organizations and individuals, who will have their assets in the United States frozen, and American citizens will not be allowed to trade with them.

Russia's President Vladimir Putin. [File Photo: VCG]

The United States has said that it is imposing these sanctions because of what it claims is a campaign of malicious hacking by Russia. It also says that the newly-sanctioned organizations and individuals were found to have been offering assistance to Russian entities that had previously been sanctioned, while others are alleged to have transferred refined oil products to vessels flying the North Korean flag in breach of existing sanctions against that country.

The U.S. State Department has also said that American investigations determined that Russia violated international law by poisoning the former Russian double agent Sergei Skripal and his daughter Yulia in Britain. In response, it is prohibiting the export of "sensitive goods and technologies involving national security" to Russia. There is speculation that the sanctions announced on Tuesday may only be the start of a new round of large-scale American sanctions against Russia.

Economists generally believe that the long-term imposition of American and European sanctions is one of the biggest difficulties facing the Russian economy. Russia has, so far, failed in its efforts to confront the United States economically. But judging by President Putin's recent statements and Russia's recent actions, the Russian president is already making big moves as follows to honor his re-election commitment to defend the country from the impact of these sanctions.

First, Strengthening interaction with Turkey, Iran and the European Union

In early August, the United States reimposed sanctions against Iran in that country's non-energy sector, and imposed sanctions on Turkey on the grounds that Turkey refused to release an American pastor.

[File Photo: VCG]

Just after the United States restarted its sanctions against Iran, Russia announced that it will maintain economic and trade cooperation with Iran at the national level. On August 13, Russia's Foreign Minister Sergei Lavrov flew to Ankara to meet with Turkey's Foreign Minister Mevlut Cavusoglu to jointly criticize the American sanctions. Minister Lavrov said that "United States sanctions against Turkey do not hinder bilateral economic and trade cooperation between Russia and Turkey."

President Putin has also been very busy. On August 18, after attending the wedding of Austrian Foreign Minister Karin Kneissl, he went to a small town near Berlin and held a three-hour closed-door meeting with Germany's Chancellor Angela Merkel. This is the second meeting of the pair in three months. The focus of the talks is the North Stream-2, the natural gas pipeline project that the United States has strongly criticized. The two sides stressed that the project is a purely economic cooperation project that should not be politicized, and discussed how the two countries will respond once the project is subject to American sanctions.

In the face of the American sanctions, Russia has actively strengthened its diplomatic engagement and cooperation with Iran, Turkey, and other countries – including America's traditional allies.

Second, Reducing U.S. dollar assets in favor of local currency settlement

As early as his meeting with Turkey's Foreign Minister Mevlut Cavusoglu, Russia's Foreign Minister Sergei Lavrov warned that American sanctions would ultimately "damage the U.S. dollar as the international settlement currency." Anton Siluanov, Russia's first deputy prime minister and finance minister, said recently that his country had reduced its dollar investments to a minimum because the dollar is becoming a "high-risk international settlement tool". According to data released by the U.S. Treasury Department, from March to May this year, Russia's holding of U.S. Treasury bonds fell sharply – from 96.1 billion to 14.9 billion U.S. dollars.

Over the past two weeks, a number of senior Russian officials have emphasized on different occasions that Russia will use more local currency for future international trade settlements. In fact, in recent years, Russia has been striving to promote local currency settlements for international trade within a framework of multilateral cooperation, such as the Eurasian Economic Union and the Shanghai Cooperation Organization.

[File Photo: VCG]

Reducing dollar assets and moving in the direction of using local currency for trade settlements, can have the effect of stopping the bleeding of Russia's economy, by reducing to some extent the impact of exchange rate fluctuations of the Ruble and reducing the dependence of Russia's economy on the dollar.

Third, Focusing on the East and seeking a "Greater Eurasian Partnership"

In June 2016, Putin called for the establishment of a "Greater Eurasian Partnership" by the Eurasian Economic Union, India, China, the Commonwealth of Independent States, and other countries at the St. Petersburg International Economic Forum. Analysts believe that the proposal shows that Russia has gradually recognized its bonds with Asia, and is no longer emphasizing that it is part of Europe. This marks a significant shift in the center of gravity of Russia's foreign policy. Russian scholars generally believe that the unpredictable changes in American foreign policy in recent years, combined with the other profound changes in Russia's neighborhood, is breeding huge uncertainties, making the "Greater Eurasian Partnership" a significant and prominent tool to maintain regional stability.

From this perspective, President Putin's first move towards establishing a broader alliance could produce short-term results as long as it is properly implemented. His second move, that of reducing Russia's holdings of U.S. dollar assets and switching to local currency settlement, will take time, given the relative strength of the U.S. dollar. His third move, which is to build the "Greater Eurasian Partnership", requires long-term management and hard work. If this idea can be gradually implemented, it can effectively improve Russia's international relationships and its business environment. President Putin has publicly stated that he welcomes the European Union to join the "Greater Eurasian Partnership" program. In the context of a series of structural and irreconcilable contradictions in Russia-U.S. relations, if this plan becomes a way to improve Russia-EU relations, it may become Russia's most effective long-term strategy to deal with the American sanctions.