Russia This Week – August 19, 2018

Russia This Week is a weekly review by the MEMRI Russian Media Studies Project, covering the latest Russia-related news and analysis from media in Russia, the Caucasus, Central Asia, and Eastern Europe.

Picture Of The Week

On August 18, Russian President Vladimir Putin attended the wedding of Austrian Foreign Minister Karin Kneissl. He then flew to Berlin for talks with German Chancellor Angela Merkel. (Source: Twitter.com)

Quote Of The Week

Commenting on US sanctions, Prime Minister Dmitry Medvedev said:

"In this war there should be a response by economical means, political means and, if needed, by other means. Our American friends should understand that."

(Ria.ru, August 10, 2018)

In The News:

Russia Prepares To New US Sanctions - Russian Minister Of Finance Siluanov: Russia Ditches Dollars

Anton Siluanov, Minister of Finance and First Deputy Prime Minister, told the Russian media outlet Thebell.io how Russia is preparing for new US sanctions. Investments in the American economy will be reduced, and the dollar will be exchanged for other currencies when settling payments with partners.

Thebell.io stressed that not only Russia that is planning to ditch dollars in payment settlements, but Turkey as well intends to do so. Turkish President Recep Tayyip Erdogan, following the introduction by the US new tariffs on steel and aluminum imports from Turkey, said that Ankara was ready to start settling payments in national currencies when trading with Russia, China, Iran and Ukraine, and wants to move to payments in euros in trade with the EU. According to Erdogan, Turkey "will never accept a system that has declared war against the entire world" via the threat of sanctions.

Commenting on US sanctions against Russia, Siluanov stressed at the "Sunday Night with Vladimir Solovyov" TV show: "We have reduced to a minimum and will continue to reduce our investments in the American economy and American securities; we will settle payments not in American dollars but in national and other currencies, including the European currency, and in fact, these restrictions will backfire on the Americans themselves, because any restrictions (…) ultimately restrict the opportunities of the country that introduces them."

Below are excerpts of Thebell.io's article:

Anton Siluanov, Minister of Finance and First Deputy Prime Minister. (Source: G20russia.ru)

Reducing Investments In The American Economy

"As Siluanov explained, Russia has already significantly reduced the investments of its state reserves (gold currency and the National Wealth Fund) in American assets. By the beginning of June, Russia's investments in the American state debt were reduced to $15 billion, from $100 billion at the beginning of the year.

Ditching The Dollar

"According to Siluanov, Russia wants to start settling payments in its national currency, as well as in euros and Chinese yuans, in order to decrease its dependence on the American dollar. If necessary, Moscow can even stop payments in dollars for the supply of oil, using other currencies instead, including its national currency. 'We can fix a dollar equivalent but receive euros or other freely convertible currencies for oil supplies, and even national currency. I do not rule out that possibility,' Siluanov emphasized.

"The general line: 'In essence, we are restricting payments and deals in the American currency, and the resilience of the dollar, which was considered to be the global currency, is now undermined due to the actions of the American authorities who say 'Today we will introduce these restrictions, tomorrow others' cause the dollar to becomes a risky tool for payments. Who needs that?' explained the minister.

Consequences Of New Sanctions

"Siluanov also estimated the consequences of new sanctions. The weakening of the Russian currency, following the news, may trigger a 0.5% growth in inflation but there is no risk of its sharply spiking, and the inflation will remain within the corridor defined by the government, the minister thinks. 'Taking into account the fact that we have restructured the market for domestic production, and especially the fact that consumer goods are now mostly Russian-produced and not imported, the influence of fluctuations in the exchange rate on consumer goods is now significantly lower than it used to be,' Siluanov explained.

"The most sensitive sanctions for Russia — in the minister's opinion, it is the introduction of restrictions for state banks and investors in Russian debt. “It is unpleasant but hardly fatal”, said Siluanov. According to him, even if the US introduces sanctions against one Russian bank, there will be no problems for ruble or foreign currency accounts, because the Central Bank will always support, with its liquidity, a bank that may be hit by sanctions.

Context

• Last week, Donald Trump's administration announced new sanctions against Moscow because of the poisoning of a former GRU colonel Sergei Skripal and his daughter Yulia in Great Britain in March of this year. Since August 22, import of dual-use goods to Russia falls under a ban, and three months later even tougher measures may be introduced, up to a complete break in trade cooperation between the countries and termination of Aeroflot flights.

• A few days before that, another package of anti-Russian sanctions was introduced in the Congress. It can impose restrictions on large Russian state banks and the Russian state debt.

• In recent months, the dollar has greatly strengthened in relation to other currencies — for example, the euro is at its lowest point in a year in relation to dollar due to fears that the [Turkish] lira would fall due to American tariffs. However, according to predictions by Morgan Stanley, State Green and other analysts, this “dollar rally” has ended, and the dollar will begin weakening later. One of the arguments in favor of this version is the artificial weakening of the dollar by Donald Trump; JP Morgan makes allowances for this scenario.

• (Thebell.io, April 20, 2018; authors: Artyom Gubenko, Vladimir Motorin)

Kommersant Sounds Out Experts On US Sanctions

The newspaper Kommersant surveyed experts following the last round of sanctions. The experts were requested to answer the following questions:

1. What's going on?

2. What will be the Kremlin's response?

3. What are the possible consequences for Russia and the world?

4. Below are excerpts from the responses by Russian experts to Kommersant's questions:

(Source: Kommersant.ru)

Russian Expert Lukyanov: Currently We Are At "War Time" – A Cold Economic And Political War

Fyodor Lukyanov said:

1. The political struggle in the US is reaching a climax, ahead of upcoming mid-term elections to Congress. Amidst the rising economic indicators that play to the Administration's and the Republicans' advantage; the Democrats are stepping up an attack against Trump mainly on "Russian track". The White House is trying to seize the initiative and prove that it is in charge – and not the Congress –of "punishing Russia. By doing so, the White House is shifting the focus from elections meddling to other issues: the Skripal case inter alia. As a result, all forms of coercive measures are being adopted– as it were a competition [between the Congress and the White House]. Yet, the internal political logic dominates over the foreign policy, while neither of the two sides seriously contemplates the ramifications for US-Russia relations.

2. Russia's capabilities are limited. Russia does not have any comparable abilities to exert pressure because the US holds a central place in international economic system and still continues to steer it. Thus, it's impossible to talk about a symmetric countermeasure. The measures, which are being discussed – cancelling the supply of rocket engines, uranium, titanium and so on – will damage some American manufactures, yet they will deliver a financial blow to Russian budget and – in a long term perspective- it will mean losing important US markets. Since CAATSA's adoption implementation in August, 2017, Russian reaction was always cautious and restrained. An immediate and effective response for the US actions is impossible, thus Russia needs a well thought out strategy of complex counteractions, which will exploit all of Washington's blunders and weak points (not necessarily only on Russian track) and which aim is to aggravate any American problems until the atmosphere in Washington changes. In this context, it is important to establish relationships flexibly and coordinate behavior with all those who are dissatisfied with US policy – it's in our favor that America under Trump is conducting an extremely aggressive course against many countries and arousing rejection amongst them.

3. Russian–American relations are in a catastrophic state, the worst in memory. Russia should depart from the assumption that no agreements are possible at the moment - the experience of both summits with Trump (Hamburg and Helsink) just proves the point. There are also no concrete concessions, which Moscow could hypothetically consider. The issue of meddling in the elections as well as US demands, following the Skripal case implies that Russia has no other choice but to recognize itself as a rogue state and unconditionally capitulate. Anything of that kind is just beyond the imagination, regardless who currently governs Russia – thus, there are no grounds for any negotiated conflict resolution at the moment. Russia should engage in a multiple risk management process and survival under extremely tough pressure  conditions– it should do so without resorting to skirmishing, without aspiring to convene ritual meetings. It should also temporarily give up the idea of "normalizing the relations with the US", taking into the consideration that "the norm", according to American view, is far beyond acceptable. We should concentrate on dealing with multiple issue of self-development, constantly looking for the ways to bypass the endless US restrictions and force our allies to do the same. Currently we are at "war time" – cold economic and political war. War is a time for confrontation, and not for reflecting about the past.

Valdai Club Program Director Sushentsov: Russia Wants To Respond Symmetrically To The Sanctions

Andrey Sushentsov, Valdai Club program director, said:

1. The Congress and the Administration have different motives. The Congress just wants to punish Russia, it does not have a goal of improving the relations or display any negotiable points, which might be discussed in a future. The Congress wants to signal Russia that its imaginary meddling in the elections will meet a response. Foreign policy does not interest the Congress so much. The measures taken by the Congress are of an internal political character. The Administration, on the contrary, assumes that by introducing the new pressure on Russia, it puts forward some negotiating conditions to be discussed in the future.

2. Both the Administration and the Congress calculations may prove wrong. Moscow will, highly likely, aspire to respond symmetrically or close to that. Any point which will prejudice Russian interests will be countered by a point damaging US interests. The counter sanctions may affect American banks operating in Russia, US airlines with flight paths over Russia and so on. Probably, the most damaging American action may be the ban on correspondent accounts of Russian state bank accounts in the US – Russian authorities may qualify that as effective aggression. If the sanctions cross a determined line, Moscow may definitely calling them as an act of aggression. Then, there will be a great temptation to engage in a way that the Russian authorities are currently being accused of. I mean various operations in cyberspace.

3. The relations will continue to deteriorate. The well-organized meetings of the Presidents lead to an opposite results. The aim of sending signals to the American establishment, which acts against its own president, is not set by Russia or otherwise dealt with in an unsatisfactory way. So there is a paradox: at the head of state level it seems that there is a mutual understanding, yet this comprehension does not help and even damages the rehabilitation of Russian-US relations. In a current situation I foresee two main scenarios. First is a continuation of the policy to raise the stakes. By introducing new sanctions the Americans feel comfortable since they believe Russia has nothing to respond with. Probably, the Russian response will be designed to surprise them. So, there will probably be a new round of escalation – not the last one. As the result it may lead to a crisis, comparable with the Caribbean one [the Cuban Missile Crisis]. It's not suitable to draw direct analogies in this case, yet at some point the sides will have to realize again that they are hostages to a mutual assured destruction and can't allow themselves to worsen relations with each other irresponsibly. The second scenario implies investing a great deal of effort in creating the right communication with the American establishment. Not only with the President. …. The problem is we have never raised and discussed this question. We need to work with the Congress and create a system which will prove the absence of hostile intentions. At first, we should open a branch of a Russian research institute or a think-tank in Washington, in conformity with all US laws – so Russian actions will be absolutely transparent for the US side. It looks like wishful thinking – but it is not so.

Colonel (ret) Bezrukov: We Should Not Wait For Reconciliatory Steps

Andrey Bezrukov, Department of Applied Political Analysis, colonel (ret) Russian Foreign Intelligence Service:

1. There is a struggle for power on various levels – inside and outside the US, since major American financial groups have global interests. The aim of the Democrats and parts of business and establishment connected to them, is to discredit the competitors: Donald Trump and his team. There are very important mid-term elections in the US in November. I'm almost sure that the Republicans will keep the Senate, yet if the Democrats gain a majority, they will be able to block any Republican initiative.  Yet, the Republicans have good odds to keep domination on both Houses. Moreover, many people who are personally indebted to Trump may reach Congress. Anyway, the stakes are very high. Russia became an instrument of the internal political fight. The attempts to spin Mueller's investigation and the issue of elections meddling to the hilt stem precisely from this matter. Those issues will be kept afloat until the elections. Trump – in order to counter this pressure- has to demonstrate that he's no less tough on Russia than the Congress. Essentially, it's a competition.

2. Any response by the Kremlin will be perceived as a hostile act and will lead to a desire to strike Russia even harder. Though politically it's unacceptable, but ideally we'd better to simply keep silent. The Kremlin may start altering the Russian internal economic system, aiming at diminishing its dependence on the international financial system and the dollar. We should also resort to personnel change - all those who do not defend national interests should be replaced. We need to utilize the growing external pressure for internal – including economic – reforms.

3. The consequences will probably be quite unpleasant. Even after the elections the Congress will be staffed with people who have built an entire career on anti-Russian rhetoric. So, we should not wait for reconciliatory steps from that direction. If the Trump Administration succeeds in reinforcing its positions some positive developments are possible. Yet, the Administration's actions will be fettered by the Congress. So, we may expect any real improvement only when the political landscape in Washington changes completely, which will happen only after some presidential terms..

(Kommersant.ru, August 13, 2018)

Read More:

• Statement by Russia's Foreign Ministry: "As is known, on August 8, the US administration announced the imminent imposition of new sanctions against Russia on the basis of the US national law on Chemical and Biological Weapons Control and Warfare Elimination. Our country is accused of having used chemical weapons in connection with the so-called Skripal case, although no one has yet been able to provide any evidence of this, and the British side, despite our repeated requests, refuses to cooperate in the investigation of the March 4 Salisbury incident." (Mid.ru, August 8, 2018; read the full statement)

• Russian FM Sergey Lavrov: Russia ready for new summit of the Russian and US presidents despite sanctions. (Tass.com, August 12, 2018; read the full article)

Skripal Case - Russian Foreign Minister Sergey Lavrov: We Never Closed Our Plants To Inspectors

Q: "In a conversation with the US Secretary of State Michael Pompeo, you expressed a categorical rejection of their statements about new US sanctions. What did Mr. Pompeo say? Based on the events of recent weeks, is it worth holding US-Russia meetings at the highest level, if post-summit relations develop the way they are now?"

Sergey Lavrov: "As for the objection to the latest US State Department act, I think everyone even vaguely aware of the so-called Skripal case understands the absurdity of the official document that the US has 'established,' claiming that it was Russia that was guilty of the Salisbury incident.

"Regarding your question about the point of meeting, we have actually never avoided contact, even with representatives of countries that pursue a clearly unfriendly policy towards us. If our leaders feel the need to meet and return to issues that we think should unite Russia and the United States, but which provoke rejection in some circles within the United States, I think a meeting will take place. At least, we are ready to develop such contacts at the level of foreign ministers – if the American side is ready to act on the basis of a balance of interests, equality and consideration of each other's positions, of course."

Question: "We have been given an ultimatum – there will be a second package of sanctions unless we do something right now."

Sergey Lavrov: "Not something. We were told that within three months after the first package is imposed on August 22, we will have to provide a certain guarantee that we will no longer behave like this and agree that foreign, international inspectors visit our chemical plants on demand. I can say only one thing – three years ago, based on all possible inspections that were carried out on our territory, we received confirmation from the OPCW that the process of chemical disarmament in the Russian Federation was complete. The United States should have done the same, around the same time. They have asked for another extension, until the early 2020s, I think, so it's probably necessary to say that there is a problem with the destruction of chemical weapons in the United States. We never closed our plants to inspectors. They visited every facility they wanted, and came to the conclusion that I have just mentioned."

(Mid.ru, August 12, 2018)

The Status Of The Caspian Sea

At the fifth Caspian Summit in Aktau (Kazakhstan), Russia, Kazakhstan, Turkmenistan, Iran and Azerbaijan agreed on the legal status of the Caspian Sea.

Commenting on the summit, Adzhar Krutov, editor in chief of Russian Strategic Studies Institute "Problems of National Strategy" magazine, stressed that the US has demonstrated its interest in the Caspian Sea. "The US has conducted negotiations with Turkmenistan and Azerbaijan regarding a deployment of naval bases in their territory. Yet, Washington failed to reach its goal. [After signing the summit,] the US has conclusively lost the ability to gain a foothold in the region, since the agreement [on the Caspian Sea status] prohibits any military presence by non-signatory states."

(Riss.ru, August 12, 2018)

Read More:

• Vladimir Putin attended the Fifth Caspian Summit in the Republic of Kazakhstan. "The Convention On the Legal Status of the Caspian Sea, a document that we have been negotiating for over 20 years, at last formalizes our exclusive rights and the responsibility each of us carries to protect the future of the Caspian Sea, and it establishes clear guidelines for its collective use," said Putin. (Kremlin.ru, August 12, 2018; read the full statement)

• Statement by Vladimir Putin following the Fifth Caspian Summit. "The plans of the Caspian states include boosting economic cooperation, expanding trade and investment ties, cooperation in the energy sector, developing the region's transport and logistics potential, and boosting tourist flows," said Putin. (Kremlin.ru, August 12, 2018; read the full statement)

• Convention on the Legal Status of the Caspian Sea. (Kremlin.ru, August 12, 2018; read the full convention)

• Foreign Minister Sergey Lavrov’s answers to media questions on the sidelines of the Fifth Caspian Summit. (Mid.ru, August 12, 2018; read the full Q&As)

Interview Of The Week

Commenting on his German counterpart Ursula von der Leyen's statement about treating Russia from a position of "strength", Russian Minister of Defense Sergey Shoigu said in an interview with Russia 24 news channel:

Q: "… The state of our military should probably demonstrate to our partners that it's quite hard to talk to Russia from a position of strength. Yet, some still dare to do so, and some politicians persist in displaying such an attitude. Take for an example, your German colleague Mrs. Von der Leyen, who called on being tougher on Russia.

See video

News in Brief:

• Russian Embassy in the US refutes allegations about Moscow's influence on Charlottesville protests. "Considering US politicians' irresponsible behavior, we will not be surprised if they accuse Russia of organizing the protests in Washington on August 12, 2018, timed to the anniversary of the Charlottesville events as well," the Embassy stressed. (Tass.com, August 13, 2018; read the full article)

• Russian Foreign Ministry spokeswoman Maria Zakharova said that the US has failed to cope with the role of the "superman" in settling international conflicts by failing to bring stability. (Tass.com, August 15, 2018; read the full article)