U.S. Issues More Russia Sanctions Threats; Markets Yawn

The Obama administration’s threat to further sanction Russia because of its meddling in Ukraine risks going stale, even as NATO warns that Moscow is not backing off.

NATO Secretary-General Anders Fogh Rasmussen said on Thursday, June 19, that Russia had moved a few thousand more troops to its border with eastern Ukraine despite withdrawing many of its more than 40,000 soldiers late last month.

"I consider this a very regrettable step backward, and it seems that Russia keeps the option to intervene further," Rasmussen said, according to the Associated Press.

"If Russia is unwilling to reverse course, the United States and the international community is prepared to impose additional cost," U.S. Treasury Secretary Jacob Lew said on Thursday in Berlin, where he was meeting with German Finance Minister Wolfgang Schäuble.

But as the Obama administration’s focus diverted to Iraq and fissures deepen between U.S. and European leaders on sanctions, the threat doesn’t carry the same weight it did when the United States was ramping up sanctions against Russian President Vladimir Putin’s advisors in March. The markets now look ready to welcome Russia back, and analysts say that after hearing idle threats for months, investors are tuning them out. The ruble has already rebounded, as has the Russian stock market. At its low point in March, the ruble had sunk 10 percent against the dollar for the year. Now it’s down only 4 percent since the beginning of the year.

"Investors simply no longer believe this line from the U.S. — rhetoric and actions have not matched, and such commentary is not seen as being very credible now," said Tim Ash, head of emerging-markets research at Standard Bank.

Washington froze the assets of 45 people, including some of Putin’s closest allies, and 19 banks and companies in an attempt to pressure Putin to reverse his annexation of Crimea and de-escalate violence in eastern Ukraine. Treasury officials have pointed to Russia’s falling currency as evidence that the sanctions were working. But any signs of progress have since disappeared, with key indicators showing that Western sanctions have had little impact on Russia’s currency or stock market.

Perhaps more importantly, the sanctions haven’t cowed Moscow. The Obama administration, NATO, and Ukrainian authorities say small numbers of Russian tanks, weapons, and troops continue to periodically cross into Ukraine.

"The sanctions have still completely failed in their primary political purpose in terms of changing Russia’s course," said Steven Pifer, a former U.S. ambassador to Ukraine and a senior fellow at the Brookings Institution. "If the Russians conclude that it’s all talk, they’re not going to respond the way we want them to."