Between a hammer and an anvil, or is there life after sanctions?

Last Wednesday, US President Donald Trump signed a law on the new economic sanctions against Russia, Iran and the DPRK. This decision caused heated debates not only in the above-mentioned countries, but also in those countries not directly affected by the restrictions. What will this "war of sanctions" bring to the world and Kazakhstan? Zhumabek Sarabekov, an expert at the Institute of World Economics and Politics under the Foundation of the First President of the Republic of Kazakhstan – Elbassy, discusses this with the “Vremya” newspaper.

- Donald Trump, during his election campaign and even after taking office, repeatedly stressed that relations with Russia need to be improved. However, he approved the introduction of new sanctions. What are the reasons for this?

- Obviously, the main reason for initiating new sanctions is connected with Moscow's "interference" with the course of the presidential elections in the United States. The confrontation with the new administration of the White House is escalating. Despite the political defeat in the presidential election, the American democrats continue to attack Trump's position. A conservative republican majority in the US Congress have been in agreement with the democratic minority, which is evidenced by the almost unanimous approval of the law on sanctions. As a result, Trump's team finds it increasingly difficult to adhere to the moderate course in relation with Russia, which was one of the campaign promises.

- Who will be affected by restrictions in the first place?

- The blow is aimed at the oil and gas sector. The new law extends the current economic sanctions imposed by Western countries against Russia in connection with the annexation of the Crimea and the conflict in the east of Ukraine, and, first of all, the new sanctions make the restrictions for key sectors of the Russian economy harsher. In particular, the largest Russian companies are losing access to US technologies for oil exploration and production. The companies in question are the flagships of the Russian economy, such as Gazprom Oil, Rosneft, Gazprom, LUKOIL and Surgutneftegaz. The first two companies are also facing the loan repayment terms period cuts in American banks. And although all these Russian energy players have been practically living under sanctions since 2014 and were able to adapt to a certain degree to the new working conditions, it is obvious that the new rules of the game will further complicate their business operation.

In addition, the enacted law imposes serious restrictions on Russia's ability to export energy resources, namely, it prohibits investing in Russian oil and gas pipeline projects. It must be clarified: the ban on investment extends not only to US, but also to any foreign companies. The fate of a number of Russian gas projects in Europe, including the Nord Stream-2, which have important economic and political significance for Moscow, is now under question. Thus, sanctions related to gas exports are particularly painful for Russia.

Unlike the previous sanctions, Washington developed the current package of restrictive measures without coordination with its European allies, which caused discontent in the European Union. What are the dissatisfactions of the Old World?

The discontent of Europeans is particularly about the fact that new US sanctions affect the activities of European energy companies that participate in joint projects with Russian corporations. Leading energy companies of the EU (Shell, OMV, Wintershall) participating in the Nord Stream-2 gas pipeline project can be heavily fined by the United States. In practice, this will lead to the freezing of such large projects as Nord Stream-2 and the construction of a plant for the production of liquefied gas on the Russian coast of the Baltic Sea. The launch of these projects is important for Europe in terms of diversifying its energy supplies. Moreover, some European politicians fear that by blocking Russia's gas projects, the US pursues the goal of imposing American liquefied gas on the European Union. Therefore, Brussels is concerned primarily with the sanctions’ negatively affecting the energy independence of the European Union. Head of the European Commission Jean-Claude Juncker said that the EU may deem the US-imposed restrictions that do not correspond to the policies and interests of European countries invalid on their territories.

- What may be the consequences of this scenario?

- The economic confrontation between the US and Europe, which will exacerbate the differences between Washington and Brussels, that surfaced after the arrival of Donald Trump to power. Moreover, some Russian experts do not exclude even a split in the ranks of Western countries.

However, it is important to take the following into account here: Europe and America can always come to a certain compromise if Washington agrees to compensate the risks for European colleagues with concessions on other issues. Therefore, although the sanctions complicate US-European relations, they are unlikely to lead to a fundamental split between the Old and New World on the issue of the political line towards Russia.

- Probably, the main question for the people of Kazakhstan is how sanctions may affect our economy. The first consequences were obvious when the national currency declined sharply in a few days. It should be added that after the official announcement of the National Bank, the tenge gained around and stopped the decline. But what will happen next?

-Although the new package of US sanctions is aimed at expanding restrictive measures against the Russian economy, Kazakhstan, like the European countries, may experience the indirect consequences of a new round of the sanctions war between Moscow and Washington. The new sanctions complicate contacts between Russian and US military, which could negatively affect the process of the Syrian settlement.

Another immediate consequence of the extended sanctions regime against Russia could indeed be a further weakening of the Tenge following the ruble.

But it is important to note that the new US sanctions do not apply to already existing energy projects with Russian participation. This means that those Kazakhstan oil and gas enterprises with a share owned by the Russian companies under sanctions, should not face any problems. However, as evidenced by the recent development of the situation, the conflict potential in the relations between Russia and the West is far from being exhausted. In this case, there is a possibility that anti-Russian sanctions can be extended further.

Therefore, Kazakhstan, whose economy is closely connected with the Russian economy, has to carefully analyze all these risks and competently manage them within the framework of the EEU.