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What, U.S. Worry? Russia Threatens Retaliation For Latest Sanctions

U.S. diplomats and their families who were expelled from Russia prepare to board a bus to leave the embassy compound in Moscow on April 5.
U.S. diplomats and their families who were expelled from Russia prepare to board a bus to leave the embassy compound in Moscow on April 5.

After Moscow seized Ukraine's Crimean Peninsula in 2014, the United States hit back hard, slapping Russian officials with asset freezes, and financial and travel restrictions.

Russia responded with threats -- "A response of Moscow will follow, and it will be painfully felt in Washington, D.C.," a top official said at the time -- but when it came, retaliation was mainly an embargo on food items from the West that stoked inflation and left Russian consumers scrambling for foreign delicacies like Parmesan cheese (plus a spate of sudden sanitary inspections of McDonald's restaurants in Moscow).

Four years later, Russia is again fuming and threatening harsh retaliation -- this time over U.S. sanctions that, in the short term, are turning out to be far more potent and damaging to the Russian economy.

The measures, announced on April 6, hit seven of Russia's wealthiest businessmen, along with 17 government officials. The move sent shock waves through the economy, with the ruble down 10 percent compared to the U.S. dollar as of April 10, and the main Russian stock index falling 13 percent. Forbes magazine estimated that the 50 richest Russians lost $12 billion on April 9 alone.

What Moscow's response will entail is an ongoing guessing game in Washington, London, and other Western capitals.

"There will be a response," Foreign Ministry spokeswoman Maria Zakharova told state television on April 8. "We traditionally do respond and we have a list of possible retaliatory measures that are being explored."

Experts point out, however, that Russia has few, if any, economic levers it can pull to retaliate. "There's not much they can do," says Anders Aslund, a longtime critic of Russia and economist working at the Atlantic Council in Washington, D.C.

"They are very much anxious to maintain foreign direct investment. They don't want to lose out on the markets, so previously they have talked about doing something and ended up doing nothing," he says.

Nevertheless, while addressing the State Duma on April 11, Prime Minister Dmitry Medvedev said that Russia should look at goods from the United States and produced by U.S. companies in Russia.

U.S. Firms In Russia

Some of the largest U.S. blue-chip companies have invested billions directly in Russia since the Soviet collapse, building factories, supply-and-distribution networks, brand loyalty, and attracting investments from portfolio managers.

Coca-Cola, Ford Motor, PepsiCo, Caterpillar, ExxonMobil, Chevron, and Microsoft, among others, all have a major physical presence in Russia. Aircraft maker Boeing has a major joint venture to produce titanium with the VSMPO-AVISMA company, owned by the state holding company Rostec.

Some Russian lawmakers have discussed targeting Boeing in response to past U.S. sanctions, Aslund says. Others have mentioned restricting commercial airlines from overflying Russia.

But going after such companies would likely hurt Russia domestically more than it would harm, or affect, U.S. policymaking.

"Past Russian retaliation had practically no impact on the U.S., and only moderate impact on the [European Union]," Gary Hufbauer, a former deputy assistant Treasury secretary who is now an economist affiliated with the Peterson Institute for International Economics, wrote in an e-mail.

Something symbolic is more likely, he predicted: "I doubt they will escalate the Syrian conflict, since Russia already had a good grip on Syria, and I think they will lay off cyber for the moment."

Asymmetric Response?

In the past, Moscow has shown no hesitation to punching back hard and fast. Russia has kicked out U.S. diplomats in response to similar U.S. measures, including the closure or seizure of U.S. properties.

In March, Russia kicked out the British Council, a government-backed cultural organization, after London expelled dozens of diplomats following the nerve-agent poisoning of a Russian former double agent in England. When the United States showed its solidarity with Great Britain by expelling 60 Russian diplomats and closing Russia's consulate in Seattle, Russia kicked out an equal number of U.S. diplomats and ordered the closure of the U.S. Consulate in St. Petersburg.

Russia has also in the past targeted nongovernmental organizations, asserting that those receiving funding from foreign governments or private charitable groups are meddling in internal affairs. But those measures weren't taken in specific retaliation to U.S. or other countries' actions.

"Russia today does not have the economic levers for influencing other countries that the U.S. has," Aleksei Makarkin, an analyst with the Center for Political Technologies, a Moscow think tank, said in an interview with the Rosbalt news agency. "American nongovernmental organizations...have already been kicked out, the diplomatic corps has been cut. What else is there?"

Makarkin also pointed to one area of Russian-U.S. cooperation that has so far been unscathed in the spiraling tensions: space. Moscow's Soyuz rockets continue to be the workhorse for the International Space Station, carrying Americans -- and Russians -- back and forth to the station, along with cargo and other equipment.

"Here, we could stop selling rocket engines for NASA and accordingly hit the American space program. But in this case, we would effectively hit Russia's space program because how else would we then earn any money?" he said.

Even something like shifting payments for oil and gas away from the dollar to rubles or euros or even cryptocurrencies like Bitcoin -- something Energy Minister Aleksandr Novak floated earlier this week -- is seen by analysts as highly unlikely given the dominance of the U.S. currency in the global economy.

"In this case, we don't have any options for a symmetrical response, therefore you need to wait for something that would be more painful for the Americans, but at the same time, wouldn't be the impetus for another round of escalation," says Nikolai Petrov, an economics expert at the Moscow-based Higher School of Economics.

He says the Kremlin might consider doing something like shuttering Voice of America or Radio Free Europe/Radio Liberty. VOA is a federal agency of the U.S. government, while RFE/RL is an independent organization that receives U.S. government funding. The two share office space in Moscow, but have separate editorial operations.

Aslund agrees that Moscow's response will likely not be a simple tit-for-tat response, due to the lack of economic levers, but also the Kremlin's propensity for keeping adversaries -- the United States or otherwise -- off balance.

"Russia always talks about asymmetric response, Putin is good at it, at surprising opponents," he said. "One should expect they would do something very different."

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    Mike Eckel

    Mike Eckel is a senior correspondent reporting on political and economic developments in Russia, Ukraine, and around the former Soviet Union, as well as news involving cybercrime and espionage. He's reported on the ground on Russia's invasion of Ukraine, the wars in Chechnya and Georgia, and the 2004 Beslan hostage crisis, as well as the annexation of Crimea in 2014.

RFE/RL has been declared an "undesirable organization" by the Russian government.

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