Russia tells Washington curbs on its banks can be act of financial warfare

MOSCOW (Reuters) – Russia warned the United States on Friday it will regard any U.S. transfer to curb the actions of its banks as a “declaration of economic war” and would retaliate, as new sanctions took their toll on the rouble and U.S. lawmakers threatened extra.

Russian Prime Minister Dmitry Medvedev holds a gathering on the consruction of a transshipment terminal for liquefied pure fuel in Kamchatka area, in Petropavlovsk-Kamchatsky, Russia August 10, 2018. Sputnik/Dmitry Astakhov/Pool by way of REUTERS

The warning, from Prime Minister Dmitry Medvedev, displays Russian fears over the influence of recent restrictions on its financial system and property, together with the rouble which has misplaced practically six p.c of its worth this week on sanctions jitters.

Economists count on the Russian financial system to develop by 1.eight p.c this yr. But if new sanctions proposed by Congress and the State Department are applied in full, which stays unsure, some economists worry progress could possibly be nearly to zero.

President Vladimir Putin mentioned what the Kremlin referred to as “possible new unfriendly steps by Washington” together with his Security Council on Friday.

Moscow’s technique of making an attempt to enhance battered U.S.-Russia ties by trying to construct bridges with President Donald Trump is backfiring after U.S. lawmakers launched a brand new sanctions drive final week as a result of they worry Trump is just too smooth on Russia.

That in flip has piled strain on Trump to indicate he’s robust on Russia forward of mid-term elections. The State Department introduced new sanctions on Wednesday linked to the poisoning of a former Russian spy in Britain in March.

On Friday, the White House strongly condemned the poisoning incident, which a spokesman for Trump’s National Security Council referred to as “a reckless display of contempt for the universally held norm against chemical weapons”.

The new sanctions pushed the rouble to two-year lows and sparked a wider sell-off over fears Russia was locked in a spiral of unending sanctions. Russian Foreign Minister Sergei Lavrov complained in regards to the new sanctions in a telephone name on Friday to Secretary of State Mike Pompeo.

Separate U.S. laws launched final week in draft type by Republican and Democratic senators, dubbed “the sanctions bill from hell” by one in every of its backers, proposes curbs on the operations of a number of state-owned Russian banks within the United States and restrictions on their use of the greenback.

Medvedev, talking on a visit to Russia’s far east, mentioned: “I can say one thing: If some ban on banks’ operations or on their use of one or another currency follows, it would be possible to clearly call it a declaration of economic war.”

The Russian flag flies over the Embassy of Russia in Washington, U.S., August 6, 2018. REUTERS/Brian Snyder

“And it would be necessary, it would be needed to react to this war economically, politically, or, if needed, by other means. And our American friends need to understand this.”

Pro-Putin lawmaker Vyacheslav Nikonov who in 2016 prompted the Russian parliament to erupt in applause when he introduced Trump had received the White House, referred to as for a troublesome response.

“War is war,” Nikonov wrote on Twitter. “We need to rid ourselves of any dependency on our rival as much as possible and stop helping them. Our response must not just be symmetrical but preventative. We need to respond now and toughly.”

FEW GOOD RETALIATORY OPTIONS

In practise nevertheless, there’s little Russia can do to hit again on the United States with out damaging its personal financial system. Officials in Moscow have made clear they don’t wish to get drawn into what they describe as a mutually-damaging tit-for-tat sanctions warfare.

The risk of extra U.S. sanctions stored the rouble beneath strain on Friday, sending it crashing to its lowest degree since June 2016 earlier than it recouped some losses.

“The Russian currency has been caught in a perfect storm of weakening crude oil prices and the new U.S. sanctions, in addition to the threat of even tougher punitive measures in the coming months,” mentioned Lilit Gevorgyan, economist at IHS Markit.

The Russian central financial institution mentioned the rouble’s fall to multi-month lows on information of recent U.S. sanctions was a “natural reaction” and that it had the mandatory instruments to stop any risk to monetary stability.

Central financial institution knowledge confirmed on Friday it had began shopping for much less international forex on Wednesday, the primary day of the rouble’s slide, to attempt to tamp down volatility.

Analysts doubt, nevertheless, that the authorities will take a lot motion to help the falling rouble, as they determined to not intervene throughout an identical sell-off in April, which was additionally pushed by U.S. sanctions.

The destiny of the U.S. invoice that will tighten sanctions a lot additional is just not sure. The full U.S. Congress is not going to be again in Washington till September, and congressional aides mentioned they didn’t count on the measure to cross in its entirety.

While it was tough to evaluate to date prematurely, they mentioned it was extra seemingly that solely a few of its provisions can be included as amendments in one other piece of laws, resembling a spending invoice Congress should cross earlier than Sept. 30 to stop a authorities shutdown.

Additional reporting by Tom Balmforth in Moscow and Patricia Zengerle in Washington Writing by Andrew Osborn; Editing by William Maclean and Peter Graff

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