Kremlin ponders next moves after being hit by US sanctions

Hit by a barrage of new sanctions this week from the Biden administration, the Kremlin is carefully weighing its response in a tense showdown with the United States.

While the U.S. wields the power to cripple the Russian economy, Moscow lacks levers to respond in kind, although it potentially could hurt American interests in many other ways around the globe.

Despite its heated rhetoric, Moscow will likely refrain from raising the stakes too high, for now, to avoid provoking even harder-hitting punitive measures from the U.S. But some observers predict that Russia and China will quickly edge closer to coordinate their policies amid the growing U.S. pressure.

Russia has denied interfering in the 2020 U.S. presidential election and involvement in the SolarWind hack of federal agencies — the activities punished by the latest U.S. sanctions. The Russian Foreign Ministry warned of an “inevitable” retaliation, charging that “Washington should realize that it will have to pay a price for the degradation of bilateral ties.”

The U.S. on Thursday ordered 10 Russian diplomats expelled, targeted dozens of companies and people, and imposed new curbs on Russia's ability to borrow money. Pundits predicted Moscow would almost certainly respond in kind to the expulsions but would refrain from any other significant moves to avoid a further escalation.

President Vladimir Putin’s foreign policy aide, Yuri Ushakov, invited U.S. Ambassador John Sullivan on Friday to tell him about the Russian response, but the Kremlin wouldn’t say what measures he announced.

Russia's economic potential and its global reach are limited compared with the Soviet Union that competed with the U.S for international influence during the Cold War. Still, Russia's nuclear arsenal and its leverage in many parts of the world make it a power that Washington needs to reckon with.

Aware of that, President Joe Biden called for de-escalating tensions and held the door open for cooperation with Russia in certain areas. Biden said he told Putin in Tuesday's call that he chose not to impose tougher sanctions for now and proposed to meet in a third country in the summer.

Putin's spokesman Dmitry Peskov said the summit offer was being analyzed.

While the new U.S. sanctions further limited Russia’s ability to borrow money by banning U.S. financial institutions from buying Russian government bonds directly from state institutions, they didn't target the secondary market.

“It’s very important that there’re no sanctions on secondary debt because that means that non-U.S. persons can buy the debt and sell it to the U.S. persons,” said Tom Adshead, director of research at Macro-Advisory Ltd, an analytics and advisory company.

Tougher restrictions would also hurt Western businesses, inflict significant economic pain on the Russian population and allow Putin to rally anti-U.S. sentiments to shore up his rule.

Ramping up sanctions could eventually drive Russia into a corner and provoke even more reckless Kremlin action, such as a potential escalation in Ukraine, which has recently faced a surge in clashes with Russia-backed separatists in the east and a massive Russian troops buildup across the border.

Ukrainian President Volodymyr Zelenskyy was in Paris on Friday to discuss the tensions with French President Emmanuel Macron. German Chancellor Angela Merkel was to join them in a call later.

Fyodor Lukyanov, a top foreign policy expert who leads the Moscow-based Council for Foreign and Defense Policies, predicted Putin would likely accept Biden's invitation to join next week’s call on climate change but could drag his feet on accepting the summit offer.

“There is no way to make any deals,” Lukyanov said. “There is a mutual antipathy and a total lack of trust.”

He charged that the only practical outcome of the summit could be an agreement to launch long and difficult talks on a replacement to the New START nuclear reduction agreement that Russia and the U.S. extended in February for another five years.

Lukyanov forecast that Russia will likely limit its response to the new sanctions to a retaliatory expulsion of diplomats, but noted that the growing U.S. pressure will push Russia and China closer together in the long run.

“Closer cooperation with China on coordinating actions to contain the United States will develop more quickly now as the Chinese are interested in that,” Lukyanov said. While Russia lacks tools for a symmetrical answer to the U.S. sanctions, “it has ample capabilities to stimulate changes in the world order,” he added.

Konstantin Kosachev, the Kremlin-connected deputy speaker of the upper house of parliament, said that by hitting Russia with sanctions and proposing a summit at the same time, the U.S. sought to take a commanding stance.

“Russia's consent would be interpreted as a reflection of its desire to soften the sanctions, allowing the U.S. to secure a dominant position at the meeting, while our refusal to meet would be a convenient pretext for more punitive measures," Kosachev wrote on Facebook.

He argued that Russia should retaliate quickly and not rush to accept Biden's summit offer.

“Revenge is a dish best served cold,” Kosachev wrote. “I believe the saying is quite adaptable to a situation when we talk not about revenge but a due answer to aggressive action by an opponent.”

Some predicted the U.S. sanctions could discourage Russia from cooperating with the U.S. on international crises.

“The Russian position will grow tougher on Syria, the Iranian nuclear deal and other issues,” Ivan Timofeev, program director at Russian International Affairs Council, said in a commentary. Instead of acting as a deterrent, he warned, the sanctions would “only anger Russia and make its policy even tougher.”

However, any attempt by Russia to undermine American interests would dangerously escalate tensions with the U.S. and trigger even harder sanctions — something the Kremlin certainly wants to avoid.

Despite the soaring tensions, Russia and the U.S. have shared interests in many global hot spots. For example, Moscow fears that instability could spread from Afghanistan to former Soviet republics in Central Asia, and it is interested in a political settlement there.

As for Iran, Moscow also doesn't want to see it with nuclear weapons, despite its friendly ties with Tehran.

Lukyanov said that Russia wouldn't try to use global hot spots to hurt the U.S. and would wait patiently to see them erode U.S. domination.

“It's not a matter of playing the spoiler here or there,” he said. “The ongoing developments will help accelerate the process of consolidation of leading powers against the U.S. domination.”

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Associated Press journalist Kostya Manenkov contributed.