Report

Divide and Conquer

Russia tries to wriggle out of sanctions by sowing discontent between Europe and the U.S.

KIRILL KUDRYAVTSEV/AFP/Getty Images
KIRILL KUDRYAVTSEV/AFP/Getty Images

Western sanctions against Russia are doing what they were intended to do, inflicting costs on Moscow for taking Crimea from Ukraine and for meddling in its eastern provinces. But instead of backing down, the Kremlin is reaching for every wedge it can find to divide the fragile coalition between the United States and the European Union that gives the economic weapon its power.

On legal, political, and economic fronts, Russian officials and companies are exploiting differences to chip away at the united trans-Atlantic approach. While the West is focused on other problem regions, such as Iraq and Syria, sanctions against Russia are vulnerable to legal challenges in EU courts and could benefit from dwindling public support for a costly fight.

One Russian counterpunch is to point out the economic pain sanctions are inflicting on Europeans. Although Russia is the intended target, the drop in trade with Moscow hurts the EU, too. Shortly before meeting with his U.S. counterpart Tuesday, Russian Foreign Minister Sergei Lavrov emphasized that the EU is paying more dearly for sanctions than the United States, the bloc’s more aggressive sanctions partner. He said the prohibitions would cost the EU 40 billion euros this year and 50 billion euros next year in lost business.

"The EU is under heavy U.S. pressure," Lavrov said in Moscow on Tuesday, according to Bloomberg. ‘‘The EU should worry about its own interests and act in line with those interests.”

The EU is more dependent on Russia for trade — especially when it comes to natural gas. Yet so far, the EU has only set aside hundreds of millions, not billions, for industries hit by Russia’s counter-sanctions. At the end of September, the European Commission said it would hand out $209 million to farmers harmed by Russia’s embargo on Western food imports. The aid comes on top of $167 million doled out starting in August. But that’s just for revenue lost from the agricultural sector since Aug. 7, when the ban was announced, which means the ultimate cost of the sanctions fight will be much higher.

"I’m not sure where [Lavrov] gets his figures," said Steven Pifer, a former ambassador to Ukraine and a senior fellow at the Brookings Institution. "They’re trying to see if they can split Europe off from the United States, but I don’t think they’ll be successful, at least in the short term."

While Lavrov played up sanctions to the media, Secretary of State John Kerry, after meeting with Lavrov, stressed all the possible problems and conflicts that could benefit from U.S.-Russia cooperation, including Ebola, Afghanistan, Iran, and North Korea. He made a point of saying that they spent the bulk of the time talking about those issues.

"We talked about many other issues besides Ukraine," Kerry said after the meeting.

Russian state-owned media has hyped the idea that the sanctions could be lifted at the end of the month when they are reviewed by EU leaders, but that is unlikely.

In this game of economic chicken, the Kremlin is still losing. The restrictions have battered Russia’s economy by driving down growth projections, causing people to yank $75 billion out of the country and forcing the central bank to spend $6 billion so far in October alone to prop up the falling ruble. If sanctions weren’t damaging enough, Moscow is also battling lower oil prices, meaning that the state-owned energy giants aren’t bringing in what they once were. Though new deals with China could give the Kremlin a crutch, the discounted price tag might mean they work out better for Beijing than Moscow.

Though Lavrov’s economic argument might not work with European leaders, individual Russian companies could find success in court. State-owned oil behemoth Rosneft looks to be taking a page out of Iran’s playbook by hiring a lawyer to challenge EU sanctions in court. European courts have often tossed out sanctions against Iranian banks and individuals after they brought suit. The Wall Street Journal reported Tuesday that the company had hired Zaiwalla & Co., a London-based law firm that has successfully challenged sanctions for Iranian clients. Sarosh Zaiwalla, the head of the firm, declined to comment on whether he’d taken on Rosneft as a client.

Russian firms aren’t just looking to Europe’s legal system for relief. They’ve also hired powerful lobbyists to make their cases in Washington.

In September, the bank for Russian state-owned energy king Gazprom hired two former senators to lobby against sanctions on the bank’s behalf. According to a disclosure statement filed with the Senate, the bank took on former Senate Majority Leader Trent Lott (R-Miss.) and former Sen. John Breaux (D-La.), who are now with Washington lobbying heavyweight Squire Patton Boggs. That came after Russian gas giant Novatek hired Qorvis, a lobbying and public relations firm. Neither lobbying firm responded to requests for comment.

Still, even if Rosneft can successfully overturn the EU restrictions, the victory might not matter. Sam Cutler, a policy advisor for sanctions law firm Ferrari & Associates, said that practically speaking, such maneuvers haven’t done much for Iranian firms. The EU has in many cases adjusted its legal argument to accommodate the ruling and then put the company or bank back on the list.

"They’re getting PR victories, but it’s not like they’re getting assets unfrozen and businesses opened," Cutler said.

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