Biden imposes sanctions on Russia, restricts buying new debt

[WASHINGTON] The Biden administration imposed a raft of new sanctions on Russia, including long-feared restrictions on buying new sovereign debt, in retaliation for alleged misconduct related to the SolarWinds hack and efforts to disrupt the US election.

The new measures sanction 32 entities and individuals, including government and intelligence officials, and six Russian companies that provide support to the Russian government's hacking operations. The US is also expelling 10 Russian diplomats working in Washington, including some intelligence officers.

The Biden administration also is barring US financial institutions from participating in the primary market for new debt issued by the Russian central bank, Finance Ministry and sovereign wealth fund. Those limits would take effect from June 14.

Russian bonds fell and the ruble dropped the most since December on news of the impending penalties, although the ruble and Russian bonds recovered some of their losses after the sanctions were announced.

"What President Biden is going to announce today, we believe, are proportionate measures to defend American interests in response to harmful Russian actions, including cyber intrusions and election interference," National Security Advisor Jake Sullivan told CNN early Thursday. "His goal is to provide a significant and credible response but not to escalate the situation."

The sanctions reflect an attempt by the US to balance the desire to punish the Kremlin for past misdeeds but also to limit the further worsening of the relationship, especially as tensions grow over a Russian military buildup near Ukraine.

The latest moves come just two days after President Joe Biden warned Vladimir Putin the US would defend its interests but also offered the possibility of a summit meeting in the coming months, drawing a cautiously positive response from Moscow.

Several of the sanctioned entities have links to Yevgeny Prigozhin, a Russian businessman dubbed "Putin's Chef" for his Kremlin catering contracts and close ties to the president. He controls the Wagner group of mercenaries that fought in Syria and Libya, and deployed to hotspots in Africa and Latin America in support of Kremlin policy.

The US Treasury has already sanctioned media outlets and other companies linked to Mr Prigozhin in December 2018 and last September. Mr Prigozhin has been under US sanctions since late 2016. Notably, the new measures didn't target any new tycoons, something that many in Moscow had feared.

Restrictions, like those announced Thursday, blocking US investors from buying ruble-denominated Russian government debt have long been seen as the "nuclear option" in financial markets, where the bonds, known as OFZs, have been a popular investment. Foreigners now hold about a fifth of that debt, worth roughly US$37 billion.

Russia's 10-year local bonds fell the most since March 2020 in early trading in Moscow, before paring that decline, while the ruble, which had rallied on the news of the Biden-Putin phone call, was down 0.7 per cent as of 4:45pm in Moscow.

Russia summoned the US Ambassador for what Foreign Ministry spokeswoman Maria Zakharova said would be a "difficult conversation" after the announcement. She vowed an "inevitable" response from Russia but didn't elaborate on what measures would come.

A senior Russian official, speaking on condition of anonymity to discuss matters that aren't public, called the new debt restrictions the least painful option since they don't affect the secondary market.

Responding to initial reports of the planned sanctions, Kremlin spokesman Dmitry Peskov said they "wouldn't facilitate" the planned summit but stopped short of saying they would derail it.

"The sanctions were moderate and I hope the reaction will be," said Andrey Kortunov, head of the Kremlin-founded Russian International Affairs Council. "Russia's response shouldn't hamper the summit. People understood that sanctions were inevitable." In a potentially conciliatory gesture, the US this week dropped plans to send two warships into the Black Sea after Russia warned the move would be "extremely provocative." Kremlin spokesman Peskov said it would be "premature" to speak of de-escalation of tensions with Ukraine.

The US has been threatening to impose additional restrictions on Russia for months to punish the Kremlin for a litany of transgressions in recent years.

A U.S. intelligence community assessment has concluded with a high degree of confidence that Putin and the Russian government authorized and directed an effort to influence the 2020 election. Some of the new measures are aimed at outlets controlled by Russian intelligence services and blamed for sowing disinformation during the 2020 campaign, according to one of the people. Others targeted include individuals and entities that operate outside Russia at the behest of Moscow.

The sanctions follow a review ordered by Biden on his first full day in office into four key areas concerning Russia: interference in the 2020 election, reports of Russian bounties on US soldiers in Afghanistan, the SolarWinds attack and the poisoning of Russian opposition leader Alexey Navalny.

BLOOMBERG