Russia Seen as Remaining 'Compliance Nightmare’ Even If US Lifts Sanctions
Even if the Trump administration were to lift U.S. sanctions against Russia, the country would still be “uninvestable” for multinational companies because of the EU’s trade and financial restrictions, which would likely remain in place, said Janis Kluge of the German Institute for International and Security Affairs.
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Kluge, speaking during an event this week hosted by the Atlantic Council, predicted that Russia is likely to remain a “heavily sanctioned economy” by the EU for the foreseeable future, even if Trump, Russian President Vladimir Putin and Ukraine strike a peace deal. He also noted that there would be no guarantee of “stability” in U.S.-Russia relations if there were a peace deal because of the unpredictability of Trump, who has in recent weeks threatened to increase sanctions against Moscow (see 2503070035).
“For internationally operating businesses, this is a compliance nightmare,” said Kluge, who is the deputy head of Eastern Europe & Eurasia Division at the Germany-based think tank. “It's way too risky to go to Russia right now.”
Kluge said it’s unlikely that the EU provides Russia any meaningful sanctions relief because of how expensive those concessions could get for the European economy. He noted that Moscow is allocating all trade revenue to its military, and so EU purchases of Russian energy, for example, could allow Russia to boost its defense industry and continue to pose a security threat to Europe.
“This means that every dollar you send to Russia means you have to spend probably $2 in defense spending to make up for that, and that makes engagement with Russia very expensive,” Kluge said. “So because of this, I think that this general picture will remain. Even if there is a ceasefire in Ukraine, I find it hard to see significant sanctions relief happening from the side of the European Union.”
But Kluge noted that some types of transactions with Russia, including deals that “don't involve a big commitment,” could be possible if U.S. sanctions are lifted. He noted that Russia “urgently” needs airplane parts, and they would “really like to buy a lot of airplane parts from Boeing right now to solve this problem created by sanctions.”
The U.S. has in place several temporary denial orders against major Russian airlines, which bar them from participating in transactions subject to the Export Administration Regulations (see 2504010054, 2412090012 and 2411070033).
Russia would also look to “stock up on spare parts and components for their military industry,” Kluge said, and it could promise to buy those parts from the U.S. if the Trump administration were to lift sanctions. “This is where I think the highest risk is in any kind of deal that could happen,” he said. “The Russian side would offer to buy a lot of these things, and maybe at some point the U.S. side would agree. And this would be, from my perspective, really dangerous.”
And while the EU is unlikely to reverse many of its Russia sanctions in the near future, Kluge said some EU member states could waver if the U.S. were to lift its measures. He specifically pointed to Germany, which could benefit from lower gas prices if sanctions were to be lifted on the Nord Stream 2 pipeline from Russia. He also said member states like Hungary could decide to block the next EU extension of sanctions against Russia, which occurs every six months and needs an EU consensus.
“So, while on the one hand, the EU is very principled and unlikely to really change, there’s a risk that the sanctions consensus could fall apart,” Kluge said. “And I think that if the US lifts sanctions, this could be destabilizing European sanctions as well.”
Edward Verona, a nonresident senior fellow with the Atlantic Council, noted that there has been “some talk” about granting Russia certain sanctions relief while also creating a so-called snapback mechanism, similar to the mechanism used by the U.S. to reimpose sanctions against Iran if the country failed to meet certain commitments to stop work on its nuclear weapons program (see 2008210009). But Verona said he doubted whether the threat of snapback sanctions would deter Putin.
“I don't know that there's any snapback that's going to have much impact,” he said.
Hermitage Capital Management CEO Bill Browder, an investment adviser who helped create the first Magnitsky-style human rights sanctions law in the U.S., said there should be no discussion in any government about lifting Russia sanctions.
“Putin has committed unbelievably grave crimes against innocent people of Ukraine. He's broken international law. He's indicted by the International Criminal Court for crimes against humanity,” Browder said. “There's not a single reason whatsoever, under any circumstances, to reduce sanctions on Russia. He's not done anything to deserve it. And the idea that it's even being considered makes no sense whatsoever.”