Russia Targeted in Trump Order For Chemical Weapons Sanctions

(Bloomberg) -- President Donald Trump signed an executive order authorizing sanctions on new issuances of Russian sovereign debt, punishing the country for the 2018 nerve-agent attack on a former Russian spy in the U.K.

The order, released by the White House late Thursday, directs the government to attempt to cut off international financing and forbids U.S. bank loans to governments subject to U.S. sanctions for using chemical or nuclear weapons.

The sanctions mark the latest U.S. step to punish Russia for allleged use of the nerve agent Novichok in an assassination attempt against a private citizen in the U.K. Thursday's order came after Moscow failed to provide the assurances required under U.S. law in response to earlier measures, said a senior administration official who asked not to be named to discuss the matter.

“By itself, this EO does nothing,” said Brian O'Toole, a senior fellow at the Atlantic Council who previously worked in the U.S. Treasury Department's sanctions unit. He said the order gives Treasury the authority to sanction new issuances of sovereign debt, but until the agency announces its own measures, it's essentially just a signal that sanctions are coming.

Investors remain confused about how sweeping the curbs to international financing and U.S. bank loans would be and when they would go into affect.

“It's still unclear exactly what might be entailed by sanctions for chemical weapons, but the market is reacting negatively because this is an area where no one was anticipating possible measures,” said James Barrineau, an emerging-market fund manager at Schroders in New York. “The fact that there might be measures related to financing makes it more serious, but again there is no clarity on what this might entail.”

The ruble dropped as much as 1.6% to 65.4 versus the dollar and 10-year ruble bond yields jumped 12 basis points to 7.47%. Ivan Tchakarov, an economist at Citigroup Inc. in Moscow, said Russia's yields could jump as much as 30 basis points more.

Curtail Lending?

Andrew Weiss, who oversees research on Russia and Eurasia for the Carnegie Endowment for International Peace, said on Twitter that the executive order would curtail lending to Russia by U.S. banks, the International Monetary Fund, the World Bank and the European Bank for Reconstruction and Development.

Related: Russia's Ruble Slumps as Trump Orders New Round of Sanctions

But he indicated the move would have little effect because Russia has $500 billion in cash reserves and is “reluctant to tap Western capital markets.” Weiss was a national security official in the administrations of former Presidents Bill Clinton and George H.W. Bush.

Trump had resisted sanctioning Russia further for the attack on the spy, Sergei Skripal, as he's tried to cultivate a friendship with Russian President Vladimir Putin and to improve relations between Washington and the Kremlin. On Wednesday Trump phoned Putin to offer U.S. help fighting wildfires in Siberia. Neither Russian nor U.S. government statements on the call mentioned the sanctions.

The move has been expected since last year. A State Department announcement in September that the financial restrictions could be implemented in November exacerbated a drop in the ruble. Delays continued, however.

Novichok, the Russian Nerve Agent That Spooked Britain: QuickTake

Some members of Congress argue that the sanctions are required under the 1991 Chemical and Biological Weapons Control and Warfare Elimination Act, after the Kremlin was determined to have been responsible for the attempted assassination of Skripal and his daughter in March 2018, using the Russian-developed toxin.

The Skripals survived, but a U.K. woman died later after coming into contact with the Novichok agent in the English city of Salisbury. The Russian government has denied involvement in the incident.

U.S. officials at the State and Treasury departments have since February had a fully vetted package of sanctions prepared for Trump's approval. They were initially delayed until after Special Counsel Robert Mueller's report was issued, after which some officials thought relations between the U.S. and Russia might thaw, according to people familiar with the matter.

But Congress has remained insistent that Russia be punished. The Democratic chairman and top Republican on the House Foreign Affairs Committee, Representatives Eliot Engel of New York and Michael McCaul of Texas, wrote Trump on July 25 to ask for the sanctions to be issued.

“We are deeply concerned that sanctions have not been imposed on Russia as required by U.S. law stemming from Russia's uses of a chemical weapon against persons living in the United Kingdom,” the lawmakers wrote.

The New York Times and Politico reported earlier Thursday that Trump had decided to move forward with the new round of Russia sanctions.

--With assistance from Josh Wingrove, Jennifer A. Dlouhy, Áine Quinn and Natasha Doff.

To contact the reporter on this story: Saleha Mohsin in Washington at smohsin2@bloomberg.net

To contact the editors responsible for this story: Alex Wayne at awayne3@bloomberg.net, Joshua Gallu

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