< Back to Current Version

U.S. Sanctions and Russia’s Economy

Changes from February 4, 2015 to February 17, 2017

This page shows textual changes in the document between the two versions indicated in the dates above. Textual matter removed in the later version is indicated with red strikethrough and textual matter added in the later version is indicated with blue.

U.S. Sanctions on Russia: Economic Implications

and Russia's Economy
February 4, 201517, 2017 (R43895)
Jump to Main Text of Report

Contents

Summary

In response to Russia's annexation of the Crimean region of neighboring Ukraine and its support of separatist militants in Ukraine's eastUkraine and ongoing military intervention in eastern Ukraine, the United States has imposed a number of targeted economic sanctions on Russian individuals, entities, and sectors. The United States coordinated its sanctions with other countries, particularly the European Union (EU). Russia has retaliated against sanctions by banning imports of certain agricultural products from countries imposing sanctions, including the United States, for one year.

Many Members of Congress have been strong proponents of economic sanctions on Russia. In December 2014, Congress unanimously passed the Ukraine Freedom Support Act of 2014 (P.L. 113-272), which authorizes the President to impose sanctions on specific Russian individuals and entities. The President signed the bill but also stated that he would not impose additional sanctions on Russia at this time. As the conflict in Ukraine continues, some Members of Congress are calling for tighter economic sanctions on Russia, in addition to other measures.

Analysts have debated the potential effects of current U.S. sanctions on Russia and Russia's retaliatory measures. Russia is a major player in the international economy; it has the world's ninth-largest economy and it is a major producer and exporter of natural gas and oil. However, there is relatively little overall trade and investment between the United States and Russia, although ties at the firm-level are significant in some instances.

Economic conditions in Russia have deteriorated at a faster rate in recent months. Capital flight from Russia has accelerated, the ruble has depreciated by more than 50%, inflation has increased, and the Russian economy is projected to contract by 3.0% in 2015. It is difficult to assess whether, and if so how much, targeted U.S. sanctions on Russian individuals and entities have contributed to worsening economic conditions in Russia, since other factors are likely contributing to Russia's economic challenges. In particular, oil prices have fallen by 50% in the past six months, and oil is a major Russian export and source of revenue for the government. However, many analysts, including senior officials at the International Monetary Fund, have argued that sanctions are at least one factor contributing to the increasingly difficult economic situation in Russia.

U.S. business groups have raised concerns that sanctions will harm American manufacturers, jeopardize American jobs, and cede business opportunities to firms from other countries. However, there are questions about the extent to which the sanctions and retaliatory measures will affect U.S. economic interests. Russia is a relatively minor trading and investment partner for the United States overall. U.S. sanctions target a specific subset of Russian individuals and entities and, in some cases, restrict only specific types of economic transactions.

The full economic impact on U.S. firms and the U.S. economy remains to be seen. To date, news reports have cited a number of U.S. firms have been adversely affected by U.S. sanctions on Russia and Russia's retaliatory measures. Russia is taking steps to develop alternative economic partners, particularly in emerging markets. Some analysts argue that the impact on U.S. firms should not be overstated; some firms were able to prepare for the disruptions, and the impact could be minimized as alternative markets are located. More broadly, U.S. exports to Russia have remained relatively robust but a weaker ruble and a contraction of the Russian economy may provide additional challenges to U.S. exports to Russia.

U.S. Sanctions on Russia: Economic Implications

Introduction

Economic sanctions on Russian individuals, entities, and sectors have been a key part of the U.S. response to Russia's annexation of the Crimean region of Ukraine and Russia's efforts to destabilize eastern Ukraine.1 For example, the United States has frozen the assets of a number of Russian individuals and entities with close ties to Russia's political leadership; restricted financial transactions with firms operating in key sectors in the Russian economy (finance, energy, and defense); and restricted oil-related exports from the United States to Russia, among other measures.2

The United States has been a leader in advocating that other countries also take action against Russia. Currently the European Union (EU) and several other countries have also imposed economic sanctions on Russia. Russia has retaliated against Western sanctions, primarily by imposing a one-year ban on the import of certain agricultural goods and products from the United States and other countries imposing sanctions.3

Many Members of Congress have been strong proponents of economic sanctions against Russia. At the end of the 113th Congress, Congress unanimously passed the Ukraine Freedom Support Act of 2014 (P.L. 113-272), which authorizes the President to impose sanctions on specific Russian individuals and entities. The President signed the bill but also stated that he would not impose additional sanctions on Russia at this time. As the conflict in Ukraine continues, some Members of Congress are calling for tighter economic sanctions on Russia, in addition to other options.4

Economic sanctions on Russia raise a host of policy questions. One set of questions focuses on the economic impact of the sanctions. Specifically, are the economic sanctions increasing pressure on Russia's government? Additionally, how do the sanctions impact U.S. economic interests? The subsequent discussion of U.S-Russia economic ties, recent economic trends in Russia, and U.S. economic interests in Russia may provide some insight into these questions.

U.S.-Russia Economic Ties

Overall U.S.-Russia Trade and Investment

Russia is a major player in the international economy: it has the world's ninth-largest economy, is home to a population of more than 140 million, and is a major producer and exporter of natural gas and oil.5 Despite Russia's size, however, there is relatively little overall direct trade and investment between the United States and Russia.

Figure 1. U.S.-Russia Economic Relations

Source: CRS analysis of data from the Global Trade Atlas, the Bank for International Settlements, and the Bank of Russia.

The United States accounts for a small share of Russia's total trade and inflows of investment (Figure 1). In 2013, Russia imported 5.6% of its goods from the United States and exported 2.7% of its goods to the United States.6 Of the more than $550 billion in foreign direct investment in Russia at the end of 2013, less than 3% was from the United States.7 Direct financial exposures are also relatively low; U.S. banks accounted for less than 13% of foreign bank loans to Russia in the second quarter of 2014.8

Likewise, Russia accounts for a small portion of U.S. international economic activity. In 2013, just 0.71% of U.S. exports of goods went to Russia and 1.19% of U.S. imports of goods came from Russia. In terms of investment, less than 0.4% of U.S. overseas investment was in Russia in 2013.9 In the second quarter of 2014, Russia accounted for 0.8% of outstanding U.S. bank loans overseas.10

EU-Russian Economic Ties

Russia has a much stronger economic relationship with Europe than with the United States (Figure 1). In 2013, more than 50% of Russia's exports of goods went to EU countries, and Russia purchased 46% of its imports of goods from EU countries. In the financial sector, European banks accounted for about 75% of Russia's total foreign bank loans in the second quarter of 2014. Similarly, Russia is important to Europe. Among other factors, Russia supplies the EU with about a third of its oil and natural gas imports. The close economic relationship between Russia and the EU is one reason why some analysts argued that U.S.-EU cooperation on sanctions with Russia would be critical for their success. At the same time, Europe's imports of oil and natural gas from Europe are one reason why it was initially difficult for European leaders to reach a consensus on Russia sanctions.

Firm- and Sector-Level Activity

Even though overall trade and investment flows between the United States and Russia are relatively small, economic ties at the firm- and sector-level are in some cases substantial. Several large U.S. companies have been actively engaged with Russia: exporting to Russia, entering joint ventures with Russian partners, and relying on Russian suppliers for inputs. A notable example is ExxonMobil, which in 2011 signed a strategic cooperation agreement with Rosneft to drill in the Russian Arctic, among other activities; initial investments were expected to be worth tens of billions of dollars.11 Other examples include PepsiCo, the largest food and beverage company in Russia; Ford Motor Co., which recently announced a partnership with Sollers, a Russian car company; General Electric, which has joint ventures with Russian firms to manufacture gas turbines; Boeing, among the top U.S. exporters to Russia; Visa and MasterCard, which provide payment services to 90% of the Russian market; and United Launch Alliance, a Lockheed Martin and Boeing joint venture, which imports Russian rocket engines.12 Russia is also an important market for Philip Morris and Avon Products.13 The U.S.-Russia Business Council, a Washington-based trade association that provides services to U.S. and Russian member companies, has a membership of 230 U.S. companies conducting business in Russia.14

The U.S. Commercial Service identifies a number of key sectors for U.S. exports and investment in Russia.15 In its 2013 Country Commercial Guide, the key sectors it identifies include: agricultural equipment; apparel; auto parts and service equipment/accessories; aviation; chemicals/plastics; construction; consumer electronics; electrical power generation and transmission equipment; energy efficiency; medical equipment; refinery equipment; safety and security equipment; and travel and tourism services. For example, in recent years Russia has focused on developing and modernizing Russian oil and gas refining operations, including upgrading domestic refining capacities, which are generally below European standards. In this initiative, the United States has been a major supplier of refinery equipment to Russia. The U.S. Commercial Service estimates that 30% (about $900 million) of Russia's imports of refinery equipment in 2013 were from the United States.

Russia is also a major supplier of some specific U.S. imports. For example, the United States has relied on a Russian rocket engine in key civilian and military space launch programs.16 Russia is also a major supplier of certain types of metals. For example, Boeing buys about 35% of the titanium it uses for commercial jetliners from VSMPO, a Russian titanium producer.17 Russia is also a top global producer of palladium, which is used in catalytic converters in cars, and accounted for a third of U.S. imports of palladium in 2013.18 Other U.S. imports from Russia include non-crude oil products; iron and steel, particularly semi-finished steel products; enriched uranium; fertilizers; fish and crustaceans; and certain synthetic rubbers, among other products. Table 1 shows the top U.S. exports to and imports from Russia.

Russia may be particularly reliant on access to the U.S. financial system, which, together with access to the U.S. dollar, has been important for Russia's cross-border trade and investment.19 Russia has relied on other countries, including the United States, for financing and access to the international payments system. Russia's reliance on the U.S. dollar ties into the importance of the energy sector to Russia's economy. The dollar has traditionally been used to settle oil transactions, and oil is a key export for Russia.

Table 1. Major U.S. Exports to and Imports from Russia

2013 data

Commodity
(HS Code)

Amount (Million US$)

Top 5 U.S. Exports to Russia

  

Nuclear Reactors, Boilers, Machinery Etc.; Parts (84)

2,313

Vehicles, Except Railway Or Tramway, And Parts Etc. (87)

1,999

Aircraft, Spacecraft, And Parts Thereof (88)

1,961

Electric Machinery Etc.; Sound Equip; TV Equipment; Parts (85)

675

Optic, Photo Etc., Medic Or Surgical Instruments Etc. (90)

659
 

 

Top 5 U.S. Imports from Russia

  

Mineral Fuel, Oil, Etc. (27)

19,458

Iron And Steel (72)

1,640

Inorganic Chemicals; Precious & Rare-Earth Met & Radioactive Compounds (28)

1,354

Precious Metals, Etc. (71)

813

Fertilizers (31)

796

Source: Data from the U.S. Census Bureau, as accessed from Global Trade Atlas.

U.S. Sanctions and Russia's Retaliatory Measures

The Obama Administration first imposed U.S. sanctions relating to the events in Ukraine in March 2014, and announced additional measures in subsequent months. The Obama Administration has targeted the sanctions on specific individuals, firms, and sectors, and explained that the sanctions "aim to increase Russia's political isolation as well as the economic costs to Russia, especially in areas of importance to President Putin and those close to him."20

In December 2014, Congress passed and the President signed into law the Ukraine Freedom Support Act of 2014 (P.L. 113-272; 22 U.S.C. 8921 et seq.), which, among other measures, authorizes the President to impose sanctions on specific Russian individuals and entities. The President stated that he did not intend at this time to impose sanctions under this law, but could at a later date if circumstances warrant.21

Examples of current U.S. sanctions on Russia include:

  • Asset freezes for specific individuals. The U.S. government has frozen assets of a number of individuals in Russian President Vladimir Putin's "inner circle," including presidential aides, key figures in Russia's legislature, and businesspersons with close ties to the Kremlin. U.S. individuals and entities are prohibited from conducting economic transactions with them.
  • Asset freezes for specific entities. Some Russian companies are also subject to U.S. asset freezes and are prohibited from engaging in economic transactions with U.S. individuals and entities. Examples include Bank Rossiya, which has been called the "personal bank of Putin," and the Volga Group, a holding company owned by a close ally of Putin.22
  • Restrictions on financial transactions with Russian firms operating in key sectors. Sanctions also target key sectors in the Russian economy, including finance, energy, and defense. As a result, U.S. individuals and entities face restrictions on dealings in some types of new debt, and in some cases new equity, with several major Russian companies. Examples include Rosneft, a state-owned oil company and the world's largest publicly-traded oil producer; Rostec, a major Russian defense conglomerate; and Sberbank, the largest bank in Russia.
  • Restrictions on oil-related exports. The United States restricts U.S. individuals and entities from exporting goods, services, or technology in support of projects that have the potential to produce oil in Russia.
  • Restrictions on dual-use exports. The United States has tightened restrictions on U.S. exports of dual-use and military items to Russia.

Economists generally agree that sanctions are more likely to be effective foreign policy tools when they are applied multilaterally, rather than unilaterally.23 The United States has taken a lead in urging other countries to impose sanctions on Russia. Currently the European Union (EU), Australia, Canada, Japan, Norway, and Switzerland, among others, have also imposed sanctions on Russia.24

The United States and other countries have also taken cooperative actions to increase economic pressure on Russia. For example, several countries, including the United States, are opposing new World Bank and European Bank for Reconstruction and Development (EBRD) projects in Russia.25 Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States have suspended participation in the G-8 and instead have convened as the G-7, of which Russia is not a member, for the first time since the late 1990s.

In response to sanctions, Russia has pursued retaliatory measures. Most notably, in August 2014, Russia announced a one-year ban on the import of certain foods from the United States, the EU, Australia, Canada, and Norway.26 The Russian government also cracked down on McDonald's restaurants operating in Russia, although restrictions may be loosening.27 Additionally, in May 2014, Russia's Deputy Prime Minister, Dmitry Rogozin, threatened to ban exports of rocket engines to the United States.28 The Russian government did not ultimately impose the ban, but in December 2014, Congress passed and the President signed legislation that could restrict the military's use of rocket engines designed or manufactured in Russia (Section 1608 of P.L. 113-291).

Sanctions, Retaliatory Measures, and the World Trade Organization (WTO)

Some Russian officials have argued that Western sanctions are a breach of the rules and principles of the World Trade Organization (WTO).29 Similarly, some U.S. and European officials have questioned whether Russia's ban on agricultural imports from the United States, the EU, and other countries are a violation of WTO rules. To date, neither side has initiated any formal proceedings under the WTO dispute settlement process with regards to the sanctions or retaliatory measures. Some argue that the U.S. measures are permitted under the WTO's national security exemption.30

Economic Trends in Russia

Economic sanctions on Russia come at a time when Russia's economy is still struggling to recover from the global financial crisis of 2008-2009. In the 2000s, Russia's economy benefited from rising oil prices. Its economy was hit hard by the global financial crisis and ensuing global economic downturn, as demand for its exports fell, particularly in Europe. Russia's economy sharply contracted by 7.8% in 2009.31 The economy rebounded the following year, growing by 4.5%. Since 2010, however, the rate of economic growth has slowed in Russia every year. Economists argue that the financial crisis and weak economic performance in recent years have highlighted fundamental problems in Russia's economy. These problems include the economy's dependence on the production and export of oil and gas, as well as the need for reform in a number of areas, including governance, corruption, administrative barriers, regulation, privatization, competition, the banking sector, and utility pricing.32

In recent months, economic conditions in Russia have started deteriorating at a faster rate. As discussed in greater detail below, capital flight from Russia has accelerated, the ruble has depreciated, inflation has increased, the economy is contracting, and public finances are strained. It is difficult to assess the extent to which, if at all, U.S. sanctions on Russian individuals and entities directly or indirectly contributed to worsening economic conditions in Russia, since other factors are likely contributing to Russia's economic challenges. In particular, oil prices have fallen by 50% in six months. Russia is a major oil producer and exporter, and oil and gas account for about half of the government's revenues.33Additionally, domestic economic policy decisions, the general political crisis in Ukraine, corruption, and an economic slowdown in Europe could be among the contributing factors. However, many policy makers and analysts, including senior officials at the IMF, have argued that sanctions are at least one factor contributing to the increasingly difficult economic situation in Russia.34

Recent Economic Challenges

The economic challenges facing Russia have intensified in recent months. Some of these challenges are discussed in greater detail below and depicted in Figure 2.

Capital flight. Investors have become more uncertain about doing business in Russia and have started pulling capital out of Russia. In 2014, net private capital outflows from Russia totaled $152 billion, compared to net outflows of $54 billion in 2012 and $61 billion in 2013.35 U.S., European, and other countries' financial institutions have reportedly cut off many major borrowers in Russia, even those not subject to sanctions.36 In July 2014, no Russian companies received loans in U.S. dollars, Swiss francs, or euros, for the first time since the global financial crisis.37 Some analysts have suggested that the Russian central bank could impose capital controls to stop money from leaving the country, but there are questions about the effectiveness and long-term consequences of capital controls. Russian officials have denied any plans to use capital controls.

During 2016, Russia's economy largely stabilized, even as the sanctions remained in place. Russia's economy contracted at a slower rate (0.8%); net private sector capital outflows slowed, from over $150 billion in 2014 to $15 billion in 2016; inflation fell by more than half, to 7.2%; the value of the ruble stabilized; and the government successfully sold new bonds in international capital markets in May 2016 for the first time since the sanctions were imposed.

Russia's economy benefited from rising oil prices in 2016, from about $30/barrel to over $50/barrel.16 Additionally, the IMF argued that the sanctions and oil shocks were cushioned by a flexible exchange rate regime, which allowed the ruble to depreciate and support exports; banking sector capital and liquidity injections; regulatory forbearance for the banking sector, to help banks avoid regulatory triggers due to acute ruble depreciation and volatile securities market prices; and limited fiscal stimulus, particularly tapping the reserve fund to finance deficit spending, which reached 3.7% in 2016.17 Unemployment has remained broadly stable, at around 5.6%, and poverty is projected around 14.6% in the first half of 2016.18

Although the economy is no longer in acute crisis, Russia's access to foreign capital remains limited. For countries reporting banking data to the Bank for International Settlements (BIS), foreign bank loans to Russia (including private and public sectors) have fallen by more than half between the end of 2013 and the third quarter of 2016, from $225 billion to $103 billion (Figure 2).19 However, there is also some evidence that investor sentiment for Russia is improving. Russia's government has been able to resume bond sales in international capital markets, and net private capital outflows have slowed. Additionally, net inward FDI into Russia, which essentially came to a halt in late 2014 and early 2015, has started to resume, although it has not reached pre-2014 levels (Figure 3). News reports indicate that some major Western companies, such as Ikea, Pfizer, and Mars (food products), are looking to open new stores and factories in Russia.20

According to the IMF, Russia's economy is projected to resume modest growth of 1.1% in 2017 and 1.2% in 2018. The IMF argues that the medium-term prospects for Russia's economy are subdued due to the impact of sanctions on productivity and investment, as well as a number of unrelated long-standing structural challenges, including slow economic diversification, weak protection of property rights, burdensome administrative procedures, state involvement in the economy, corruption, and adverse demographic dynamics (declining population and lower labor force participation).21 Some analysts have also noted that the low value of the ruble may hamper Russia's attempts to innovate and modernize its economy, and that the economy's continued reliance on oil makes it vulnerable to another drop in oil prices.22

Figure 2. Foreign Bank Loans to Russia

Amounts Outstanding

Figure 3. Inward Foreign Direct Investment in Russia

Net Inflows

Estimates of the Sanctions' Impact on the Russian Economy

Some analysts have used statistical models to estimate the precise impact of sanctions imposed by the United States, the EU, and other countries on Russian individuals, firms, and sectors since 2014 relative to other factors, including oil prices. In 2015, the IMF estimated that U.S. and EU Ukraine-related sanctions and Russia's retaliatory ban on agricultural imports reduced output in Russia over the short term between 1.0% and 1.5%.23 The IMF's models suggest that the effects on Russia over the medium term could be more substantial, reducing output by up to 9%, as lower capital accumulation and technological transfers weaken already declining productivity growth. At the start of 2016, a State Department official argued that sanctions were not designed to push Russia "over the economic cliff" in the short run, but are designed to exert long-term pressure on Russia.24

In November 2014, Russian Finance Minister Anton Siluanov estimated the annual cost of sanctions to the Russian economy at $40 billion (2% of GDP), compared to $90 billion to $100 billion (4% to 5% of GDP) lost due to lower oil prices.25 Similarly, Russian economists estimated that the financial sanctions would decrease Russia's GDP by 2.4% by 2017, but the effect would be 3.3 times lower than the effect from the oil price shock.26

Russian President Vladimir Putin stated in November 2016 that the sanctions are "severely harming Russia" in terms of access to international financial markets, although the impact is not as severe as the harm from the decline in energy prices.27 Some analysts have noted that sanctions do not prohibit the Russian government from selling government bonds to Western investors, and as the Russian government resumes bond sales in international capital markets, it may lend the money on to sanctioned entities, easing their access to financing.28

In December 2016, the Office of the Chief Economist at the U.S. State Department published estimates of the impact of the U.S. and EU sanctions in 2014 on a firm-level basis.29 The main finding is that the average sanctioned company or associated company in Russia lost about one-third of its operating revenue, over one-half of its asset value, and about one-third of its employees relative to non-sanctioned peers. Their research also suggests that sanctions had a relatively smaller impact on Russia's economy overall (Russian GDP and import demand) compared to oil prices.

U.S. Economic Interests

There is debate about the economic impact of the Ukraine-related sanctions for the United States. When the sanctions were announced, U.S. business groups, including the Chamber of Commerce and the National Association of Manufacturers, raised concerns that U.S. sanctions on Russia could disrupt the operations of U.S. firms in Russia, thereby harming American manufacturers, jeopardizing American jobs, and ceding business opportunities to firms from other countries.30

Other analysts argued that the targeted sanctions were designed to minimize the impact on the U.S. economy while meeting foreign policy obligations to Europe and Ukraine and advancing U.S. national security interests. They note that Russia is a relatively minor trading and investment partner for the United States as a whole. Additionally, sanctions do not prohibit all economic transactions between the United States and Russia. They target a small portion of Russian individuals and entities and, in some cases, only restrict specific types of economic transactions.

U.S.-Russia Trade and Investment Relations

Although Russia is a major player in the international economy—it is the world's 12th-largest economy, is home to a population of more than 140 million, and is a major producer and exporter of natural gas and oil—U.S.-Russia economic ties have been historically relatively limited.31 Russia accounts for a small portion of overall U.S. international economic activity. Even before the Ukraine-related sanctions were imposed, the United States had little direct trade and investment with Russia. Over the past decade, Russia has accounted for less than 2% of total U.S. merchandise imports, less than 1% of total U.S. merchandise exports, less than 1% of U.S. foreign direct investment (FDI), and less than 1% of FDI in the United States.32

Figure 4. U.S. Merchandise Trade with Russia

Figure 2. Economic Trends in.

U.S. policymakers are debating the use of economic sanctions in U.S. foreign policy toward Russia, including whether sanctions should be kept in place or further tightened. A key question in this debate is the impact of the Ukraine-related sanctions on Russia's economy and U.S. economic interests in Russia.

Economic Conditions in Russia

Russia faced a number of economic challenges in 2014 and 2015, including capital flight, rapid depreciation of the ruble, exclusion from international capital markets, inflation, and domestic budgetary pressures. Growth slowed to 0.7% in 2014 before contracting sharply by 3.7% in 2015. The extent to which U.S. and EU sanctions drove the downturn is difficult to disentangle from the impact of a dramatic drop in the price of oil, a major source of export revenue for the Russian government, or economic policy decisions by the Russian government.

The International Monetary Fund (IMF) estimated in 2015 that U.S. and EU sanctions in response to the conflict in Ukraine and Russia's countervailing ban on agricultural imports reduced Russian output over the short term by as much as 1.5%. Russia's economy, more recently, is showing some signs of recovery, in part due to higher oil prices, a flexible exchange rate regime, and sizeable foreign exchange reserves, among other factors. The IMF projects Russia's economy will grow by 1.1% in 2017.

U.S. Economic Interests

When the sanctions were announced in 2014, U.S. business groups raised concerns that sanctions harm American manufacturers, jeopardize American jobs, and cede business opportunities to firms from other countries. When the sanctions were rolled out in 2014, news reports cited a number of U.S. firms that were adversely affected by U.S. sanctions on Russia and Russia's retaliatory measures. There are questions about the overall impact of the sanctions on the U.S. economy, however. Russia accounts for a small portion of total U.S. trade and foreign investment. U.S. sanctions also target specific Russian individuals and entities and, in some cases, restrict only specific types of economic transactions.

U.S. Sanctions and Russia's Economy

Introduction

Over the course of 2014, the U.S. government rolled out targeted economic sanctions on Russian individuals and entities in critical commercial sectors in response to that country's annexing of the Crimean region of neighboring Ukraine and its support of separatist militants in Ukraine's east.1 Designed to change behavior of the Russian government by putting pressure on the Russian economy, sanctions include asset freezes for specific Russian individuals and entities; restrictions on financial transactions with Russian firms operating in key sectors; restrictions on U.S. exports, services, and technology for specific Russian oil exploration or production projects; and tighter restrictions on U.S. exports of dual-use and military items to Russia.

The United States coordinated its sanctions with other countries, particularly with the European Union (EU). Russia retaliated against sanctions by banning imports of certain agricultural products from countries imposing sanctions, including the United States.

U.S. policymakers are debating the use of economic sanctions in U.S. foreign policy toward Russia, including whether sanctions should be kept in place or further tightened. For example, in the Senate, legislation has been introduced to impose additional sanctions in response to Russia's alleged hacking of U.S. persons and institutions, including U.S. political organizations, and other aggressive actions, including in Ukraine (S. 94), and to provide congressional oversight of actions that would limit Russia sanctions (S. 341, H.R. 1059). Legislation has also been introduced in the House to tighten sanctions, for example by prohibiting certain transactions in areas controlled by Russia (H.R. 830), and to prohibit U.S. recognition of Russian sovereignty over Crimea (H.R. 463). Some Members of Congress have proposed codifying existing sanctions, which could make them more difficult to ease or remove.2 Most of the current restrictions were put in place by President Barak Obama issuing Executive Orders under emergency authorities.

On February 2, 2017, U.N. Ambassador Nikki Haley opened her first public remarks by referring to a recent flare-up of violence in Ukraine, noting that "the dire situation in eastern Ukraine is one that demands clear and strong condemnation of Russian actions." She stated that "the United States continues to condemn and call for an immediate end to the Russian occupation of Crimea" and that "Crimea-related sanctions will remain in place until Russia returns control of the peninsula to Ukraine."3

A key question in this debate is the impact of the Ukraine-related sanctions on Russia's economy and U.S. economic interests in Russia. The subsequent discussion on recent economic trends in Russia and U.S. economic ties with Russia may provide insight.

U.S. Sanctions in Response to the Ukraine Conflict

The Obama Administration first imposed sanctions relating to the events in Ukraine in March 2014, and announced additional sanctions over subsequent months, working in coordination with the EU. The Obama Administration explained that the targeted sanctions on specific individuals, firms, and sectors "aim to increase Russia's political isolation as well as the economic costs to Russia, especially in areas of importance to President Putin and those close to him."4

In 2014, Congress also passed, and President Obama signed into law, the Support for the Sovereignty, Integrity, Democracy, and Economic Stability of Ukraine Act of 2014 (P.L. 113-95; 22 U.S.C. 8901 et seq.) and the Ukraine Freedom Support Act of 2014 (P.L. 113-272; 22 U.S.C. 8921 et seq.). These acts contain provisions on U.S. sanctions in response to the conflict in Ukraine.5

U.S. sanctions on Russia in response to the Ukraine conflict include the following:

  • Asset freezes and prohibitions against transactions with specific Russian individuals. The U.S. government has frozen assets under U.S. jurisdiction and prohibited U.S. persons from engaging in transactions with a number of Russian individuals, including Russian officials, deputies, businesspeople, and associates with ties to the Kremlin.
  • Asset freezes and prohibitions against transactions with specific entities. Some Russian companies are subject to U.S. asset freezes and are prohibited from engaging in economic transactions with U.S. individuals and entities. Examples include Bank Rossiya, which has been called the "personal bank of Putin"; the Volga Group, a holding company owned by a close ally of Putin; and Almaz-Antey, a state-owned defense company.6
  • Restrictions on financial transactions with Russian firms operating in key sectors. Sanctions target sectors in Russia's financial services, energy, and defense sectors. U.S. individuals and entities face restrictions on select financial transactions, such as prohibitions on extending new debt with maturities longer than 30 or 90 days (depending on the sector). Examples of Russian firms subject to these sanctions include Rosoboronexport, a state-owned arms exporter; Rosneft, a state-owned oil company and the world's largest publicly traded oil producer; Rostec, a major Russian hi-tech and defense conglomerate; and Sberbank, the largest bank in Russia.
  • Restrictions on specific oil-related exports, services, and technology to Russia. The United States restricts U.S. individuals and entities from exporting goods, services, or technology in support of exploration or production for deepwater, Artic offshore, or shale projects that have the potential to produce oil in Russia or in the maritime area claimed by Russia.
  • Restrictions on specific exports. The United States has tightened restrictions on U.S. exports of dual-use and military items to Russia.

The United States urged other countries to impose sanctions on Russia, and coordinated sanctions with a number of other countries, particularly in the EU. In August 2014, Russia announced a retaliatory ban on the import of certain foods from the United States, the EU, and other countries imposing sanctions.

In 2014, the United States and other countries also began opposing new projects in Russia at the World Bank and European Bank for Reconstruction and Development (EBRD), to put additional pressure on the Russian government in response to Russia's actions in Ukraine.7 Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States suspended the G-8 and instead resumed convening as the G-7, of which Russia is not a member, for the first time since the late 1990s. Russian officials still attend G-20 meetings, which include a broader group of advanced and emerging-market economies.8

Sanctions, Retaliatory Measures, and the World Trade Organization

Some Russian officials have argued that Western sanctions in response to the conflict in Ukraine breach the rules and principles of the World Trade Organization (WTO).9 Similarly, some U.S. and European officials have questioned whether Russia's ban on agricultural imports from the United States, the EU, and other countries is a violation of WTO rules. Neither side, however, has initiated any formal proceedings under the WTO dispute settlement process with regards to the sanctions or retaliatory measures. Some analysts argue that such measures are permitted under the WTO's national security exemption.10
Economic Implications for Russia

U.S. and EU sanctions on Russian individuals, firms, and sectors in 2014 came at a time when Russia's economy was still struggling to recover from the global financial crisis of 2008-2009. In the early 2000s, Russia's economy benefited from rising oil prices. Its economy was hit hard by the global financial crisis and ensuing global economic downturn, as demand for its exports fell, particularly in Europe. Russia's economy contracted sharply, by 7.8%, in 2009.11 The economy rebounded the following year, growing by 4.5%, before slowing between 2010 and 2013. Economists argue that the financial crisis and weak economic performance highlighted fundamental problems in Russia's economy, including the economy's dependence on the production and export of oil and gas, as well as the need for reform in a number of areas, including governance (including the need to address corruption), regulation, privatization, competition, the banking sector, and utility pricing.12

Recent Trends in Russia's Economy It is difficult to assess whether, and to what extent, the targeted U.S. and EU sanctions in response to the conflict in Ukraine, and Russia's retaliatory measures, have impacted the Russian economy broadly over the past two to three years. Sanctions hit at the same time the price of oil, a major export and source of revenue for the Russian government, dropped dramatically, by more than 60% between the start of 2014 and the end of 2015.13 That said, many economists, including at the IMF, have argued that the twin shocks of multilateral sanctions and low oil prices were the major driver behind Russia's economic challenges in 2014 and 2015 (Figure 1).14 In particular, Russia grappled with
  • economic contraction, with growth slowing to 0.7% in 2014, before contracting sharply by 3.7% in 2015;
  • capital flight, with net private capital outflows from Russia totaling $152 billion in 2014, compared to $61 billion in 2013;
  • rapid depreciation of the ruble, more than 50% against the dollar over the course of 2015;
  • a higher rate of inflation, from 6.8% in 2013 to 15.5% in 2015;
  • budgetary pressures, with the budget deficit widening to 3.2% in 2015, up from 0.9% in 2013;
  • tapping international reserve holdings to offset fiscal challenges, including exclusion from international capital markets, as reserves fell from almost $500 billion at the start of 2014 to $368 billion at the end of 2015; and
  • more widespread poverty, which increased by 3.1 million to 19.2 million in 2015 (13.4% of the population).15

Figure 1. Economic Trends in Russia

Source: Created by CRS using data from the IMF World Economic Outlook and the Bank of Russia.

Note: GDP growth, inflation, and government budget graphs compare IMF forecasts from April 2014 with IMF forecasts from October 2016.

Source: Created by CRS using Consolidated Banking Data from the Bank for International Settlements.

Notes: Data are for consolidated international bank claims on an ultimate risk basis, accessed on February 2, 2017. Reporting countries include Australia, Austria, Belgium, Canada, Chile, Chinese Taipei, Finland, France, Germany, Greece, Hong Kong, Italy, Japan, the Netherlands, Norway, Portugal, Singapore, South Korea, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States.

Source: Created by CRS from Central Bank of Russia data.

Source: CRS compilation of data from the IMF World Economic Outlook and the Bank of Russia.

Depreciation of the ruble. Capital flight from Russia contributed to downward pressure on the ruble, which depreciated against the dollar by more than 50% between July 2014 and early December 2014. On December 15, 2014, investors started a massive sell-off of the ruble. In order to stem its further depreciation, the Bank of Russia (Russia's central bank) announced its biggest interest rate hike since 1998, raising a key interest rate from 10.5% to 17%, at an emergency meeting on December 16. Despite this measure, the ruble continued to sharply depreciate. In early January 2015, the ruble was trading at 63 rubles per dollar, compared to 33 rubles per dollar a year earlier. The central bank is periodically intervening in foreign exchange markets (meaning it is selling foreign currencies and purchasing rubles) to support the value of the ruble. It sold $11.9 billion U.S. dollars in December 2014.38

Inflation. In November 2014, inflation in Russia increased to 9.1%, the fastest acceleration since 2011 and well above the central bank's target rate of 5% to 6%. One factor driving higher rates of inflation has been the depreciation of the ruble, which makes imports in Russia more expensive. In addition, Russia's ban on certain agricultural imports has caused food prices in Russia to rise. For example, in November 2014, the price of buckwheat increased more than 50% and the cost of fresh tomatoes jumped nearly 35%.39 The ban has also resulted in limited shortages and/or decline in quality of certain kinds of food products.40

Economic contraction. The IMF has steadily lowered its forecasts for economic growth in Russia over the past several months. In its most recent forecast, released in January 2015, the IMF downgraded its forecast for Russia's economic growth in 2015, from growing by 0.5% to contracting by 3.0%. The IMF projects that, in 2016, Russia's economy will also contract by 1.0%.41

Strain on public finances. Russia entered the current period of economic challenges with a relatively strong fiscal position: it had large foreign currency reserves ($339 billion at the end of 2014) and relatively little debt (projected to be only 16% of gross domestic product (GDP) in 2014, compared to 120% of GDP for the G-7 countries).42 Russia's financial resources have given it some leverage to provide direct financial assistance to selected Russian firms under stress. For example, in December 2014, Putin announced that one of Russia's sovereign wealth funds, the National Welfare Fund, would be used to recapitalize Russian banks. 43 However, some analysts question how liquid Russia's foreign exchange reserves actually are, and how long they will last in the current economic environment.44 The Russian government, reliant on oil and natural gas sales for its revenue, is planning a 10% budget cut for 2015 and to use reserves to cover some of the expected budget shortfall.45

U.S. Economic Interests

U.S. business groups, including the Chamber of Commerce, the National Association of Manufacturers, and USA*Engage, have raised concerns that U.S. sanctions on Russia could disrupt the operations of U.S. firms in Russia, thereby harming American manufacturers, jeopardizing American jobs, and ceding business opportunities to firms from other countries.46 However, there may be questions about the extent to which the sanctions and retaliatory measures are affecting, or will affect, U.S. firms and the U.S. economy. As discussed above, Russia is a relatively minor trading and investment partner for the United States as a whole. Additionally, U.S. sanctions do not prohibit all economic transactions between the United States and Russia. They target specific Russian individuals and entities and, in some cases, only restrict specific types of economic transactions.

In many ways, it is still too early to gauge the full economic effect of the sanctions. Some initial trends and indicators are discussed below:

Some U.S. firms and industries have been adversely impacted by the sanctions. News reports have cited a number of examples of U.S. firms whose operations have been, or are starting to be, disrupted by the sanctions. For example, sanctions forced ExxonMobil to suspend its $700 million exploration in Russia's Kara Sea (a joint venture with Rosneft).47 Oilfield service companies, including Halliburton and National Oilwell Varco, have reported that sanctions are restricting their operations in Russia and expressed concern that sanctions will limit their profits in the second half of 2014.48 Likewise, John Deere, which makes heavy farm equipment and has two factories in Russia, has attributed weaker sales to the sanctions.49 U.S. gun dealers also face restrictions on imports of specific Russian-made rifles, of which they have reportedly sold tens of thousands in previous years.50

It is difficult to extrapolate the full impact of sanctions on U.S. firms from these examples. One reason is that Russia may not be a critical economic partner for some U.S. firms and industries affected by the sanctions. This may be the case, for example, with Visa and MasterCard. In response to the sanctions, Russia announced plans to accelerate the development of its own national payments system, which would undermine MasterCard and Visa's dominance in the Russian market.51 However, Russia only accounts for a small portion (2%) of their profits.52

Another factor is that the implementation of sanctions in phases or "rounds" has given U.S. companies some time to prepare for disruptions in economic transactions with Russia. According to news reports, many multinational companies have developed contingency plans that would allow them to adjust to suppliers and banks outside of Russia and minimize the impact of sanctions on their operations.53 There is likely less press coverage of U.S. firms that have been able to minimize the impact of the sanctions on Russia or the effects of Russian retaliation.

Some U.S. agricultural producers have been affected by Russia's retaliatory ban on agricultural imports. The overall economic impact of Russia's ban on certain U.S. agricultural exports is expected to be relatively small; Russia accounts for about 1% of the United States' total food and agricultural exports.54 However, specific producers within the United States have been or could be adversely affected. For example, the congressional delegation from Alaska has expressed concerns about the impact on Alaska's seafood industry.55 Another example is Washington state apple and pear producers, who sold $23 million worth of pears and apples to Russia last year and had to locate new purchasers at the start of the new harvest season.56 According to one private sector estimate, the ban could result in 12,000 job losses in the United States.57 Over the longer- Created by CRS using U.S. Census Bureau data, as accessed from Global Trade Atlas. Over the past three years, U.S. commodity trade with Russia has fallen by almost half (Figure 4). U.S. merchandise exports to Russia fell from $11.1 billion in 2013 to $5.8 billion in 2016. U.S. merchandise imports from Russia fell from $27.1 billion in 2013 to $14.5 billion in 2016. U.S. investment ties with Russia also continued to weaken. U.S. investment in Russia was $9.2 billion in 2015, and down from a peak of $20.8 billion in 2009.33 Russian investment in the United States was $4.5 billion, down from a peak of $8.4 billion in 2009.

It is difficult to assess the extent to which the downward trend in U.S. trade and investment with Russia was driven by the Ukraine-related sanctions. The sanctions target specific transactions with specific Russian individuals, firms, and sectors. Many trade and investment transactions between U.S. and Russian individuals and entities are not directly impacted by sanctions. Other factors may have driven the downturn, such as the economic contraction in Russia, structural problems in Russia's economy, or an inward-looking policy shift by the Russian government.34 Factors in the U.S. economy could also be at play, such as strengthening in the value of the U.S. dollar.

Figure 5. U.S. and EU Economic Ties with Russia

Source: CRS analysis of data from Global Trade Atlas, Bank for International Settlements, and Bank of Russia.

EU-Russian Economic Ties

Russia has a much stronger economic relationship with Europe than with the United States (Figure 5). In 2015, nearly 50% of Russia's exports of goods went to EU member countries, compared to less than 3% to the United States. Nearly 40% of Russia's imports of goods came from EU member countries, compared to about 6% from the United States. In the financial sector, European banks accounted for about 75% of Russia's foreign bank loans in the third quarter of 2016 for countries reporting data to the BIS. Russia is also important economically to Europe, including as a supplier of natural gas and oil. The close economic relationship between Russia and the EU is one reason why analysts have argued that U.S.-EU cooperation on sanctions with Russia is critical for their success, but at times has created debate about the sanctions among European leaders. U.S.-Russia Economic Ties at the Firm Level Several large U.S. companies have been actively engaged with Russia: exporting to Russia, entering joint ventures with Russian partners, and relying on Russian suppliers for inputs. A notable example is ExxonMobil, which in 2011 signed a strategic cooperation agreement with Rosneft, the Russian state-owned oil company, to drill in the Russian Arctic, among other activities now subject to sanctions.35 Other examples include PepsiCo, the largest food and beverage company in Russia; Ford Motor Co., which has a partnership with Sollers, a Russian car company; General Electric, which has joint ventures with Russian firms to manufacture gas turbines; Boeing, among the top U.S. exporters to Russia; Visa and MasterCard, which provide payment services to 90% of the Russian market; and United Launch Alliance, a Lockheed Martin and Boeing joint venture, which imports Russian rocket engines.36 Russia is also an important market for Philip Morris and Avon Products.37 The U.S.-Russia Business Council, a Washington-based trade association that provides services to U.S. and Russian member companies, has a membership of 170 U.S. companies conducting business in Russia.38

When new U.S. sanctions on Russia were implemented in 2014 in response to the conflict in Ukraine, news reports cited a number of U.S. firms whose operations were disrupted. For example, sanctions forced ExxonMobil to suspend its $700 million exploration in Russia's Kara Sea (a joint venture with Rosneft).39 During the first seven months of sanctions, Exxon reported losses amounting to about $1 billion from its Russian operations.40 Oilfield service companies, including Halliburton and National Oilwell Varco, reported that sanctions restricted their operations in Russia and expressed concern that sanctions will limit their profits.41 Likewise, John Deere, which makes heavy farm equipment and has two factories in Russia, attributed weaker sales to the sanctions.42 U.S. gun dealers also face restrictions on imports of Russian-made Kalashnikov rifles, of which they have reportedly sold tens of thousands in previous years.43 Additionally, U.S. financial institutions have reportedly needed to hire additional legal and technical staff to monitor accounts and review any financing arrangements with Russian entities.44

It is difficult to extrapolate the full impact of sanctions on U.S. firms from these examples. One reason is that Russia may not be a critical economic partner for some U.S. firms and industries affected by the sanctions. For example, in response to the sanctions, Russia announced plans to accelerate the development of its own national payments system, which would undermine MasterCard and Visa's dominance in the Russian market.45 Although no such system has been rolled out to date, Russia only accounts for a small portion (2%) of MasterCard's and Visa's profits.46 In at least one case following the new sanctions, a U.S. subsidiary of a Russian company cut ties with the parent company and relocated manufacturing to the United States.47

Another factor is that the implementation of sanctions in phases or "rounds" gave U.S. companies some time to prepare for disruptions in economic transactions with Russia. According to news reports, many multinational companies have developed contingency plans that would allow them to adjust to suppliers and banks outside of Russia and minimize the impact of sanctions on their operations.48 There is likely less press coverage of U.S. firms that have been able to minimize the impact of the sanctions on Russia or the effects of Russian retaliation.

Moreover, aggregate trade and investment trends mask differences at the firm and sector level. Although trade in most sectors has declined, in some cases, ties strengthened. For example, U.S. imports of aluminum from Russia increased by $536 million (68%) between 2014 and 2016.49

Some U.S. agricultural producers have been adversely affected by Russia's retaliatory ban on agricultural imports. Although Russia accounted for about 1% of the United States' total food and agricultural exports at the time the ban was imposed, specific producers within the United States have been adversely affected. For example, the congressional delegation from Alaska expressed concerns about the impact on Alaska's seafood industry.50 Another example is Washington State apple and pear producers, who sold $23 million worth of pears and apples to Russia in 2013 and had to locate new purchasers at the start of the new harvest season.51 Over the longer term, however, the impact of the sanctions could be mitigated in part as alternative markets for U.S. agricultural exports are located. For example, even though Russia's ban on agricultural imports impacted the U.S. poultry sector, which exported about $300 million to Russia a year, the industry downplayed the impact of the ban, stressing that Russia had already become a less important export market.52

In Response to Sanctions, Is Russia Turning to Emerging Markets?

Some U.S. stakeholders are concerned that sanctions will cause Russia to turn away from U.S. companies and seek alternative economic partners, particularly in emerging markets (which have not imposed sanctions on Russia).53term, however, the impact of the sanctions could be mitigated in part as alternative markets for U.S. agricultural exports are located.

U.S. exports of goods to Russia are up slightly. To date, U.S. exports to Russia have remained relatively robust since sanctions on Russia were announced. U.S. exports of goods to Russia were 1.3% higher in the first three quarters of 2014 than in the first three quarters of 2013. However, U.S. imports of goods from Russia were 10% lower over the same time period.58 It is not clear how U.S.-Russian trade flows will evolve in coming months. A weaker ruble relative to the U.S. dollar may make U.S. exports to Russia less competitive and may increase the competitiveness of U.S. imports from Russia. Additionally, if Russia's economy contracts, as many economists are projecting, Russian demand for U.S. exports could decline.

The U.S. economy overall has strengthened in recent months. To date, U.S. economic growth has remained relatively strong since sanctions on Russia were announced. In January 2015, the IMF estimated that U.S. growth will be 3.6% in 2015 and 3.3% in 2016, up from its forecast for the United States in October 2014.59 IMF projections for U.S. economic growth are also higher than the average growth rate for other advanced economies (2.4% in 2015 and 2.4% in 2016). Additionally, the U.S. unemployment rate fell to 5.6% in December 2014, its lowest rate since June 2008.60 However, it is difficult to know whether these macroeconomic indicators would have been even stronger in the absence of sanctions. It is also difficult to predict the impact of sanctions on U.S. growth and employment going forward. For example, an economic crisis in Russia could cause growth in the EU to slow. Slower growth in Europe could have spillover effects for the United States, given their strong economic links.

Russia is seeking alternative economic partners. Some analysts are concerned that sanctions will cause Russia to turn away from U.S. companies and seek out alternative economic partners, particularly in emerging markets (which have not imposed sanctions on Russia).61 There is some evidence to support this concern. For example, in October 2014, Russia and China completed approximately 40 agreements related to finance and technology.6254 Russia is also reportedly turning to Brazil and other Latin American countries for food imports to compensate for losses resulting from its ban on agricultural imports from other countries.63 However, it is 55 However, total Russian exports of goods to other key emerging markets, including Brazil, China, and India, fell between 2013 and 2015. Additionally, it is also not clear whether and to what extent these relationships would continue in the absence of U.S. sanctions on Russia.

Conclusion

The United States has imposed sanctions on a number of Russian individuals and entities in response to Russia's government's annexation of Crimea and involvement in the Ukraine crisis, in coordination with the EU, implemented targeted sanctions on key Russian individuals, entities, and sectors in response to Russia's actions in Ukraine. U.S. sanctions include, for example, targeting officials in Putin's inner circle, placing restrictions on new debt to key sectors in Russia's economy, and opposing new multilateral development projects in Russia. The United States has worked to coordinate its sanctions with a number of other countries, particularly those in the EU. As Congress considers additional economic sanctions on Russia and placing restrictions on new debt to specific financial institutions. As Congress evaluates U.S. foreign policy toward Russia and the role that sanctions may or may not play in advancing U.S. national security interests, it may consider the impact of current economic sanctions on Russia's economy and foreign policy, in addition to their impact on U.S. foreign policy and economic interests.

Russia's economy has deteriorated rapidly in recent months, marked byfaced a number of challenges in 2014 and 2015, including capital flight, depreciation of the ruble, rising inflation, weaker growth prospects, and budgetary pressures. Many experts believe that sanctions are contributing to Russia's economic challenges. However, it is difficult to assess the impact of sanctions separate from other domestic and international factors, particularly low oil prices. Longer-term, the economic impact of the sanctions will depend on a number of factors, including whether any new sanctions on Russia are imposed. The effectiveness of the sanctions in inducing a change in the behavior of the Russian government remains to be seenThe effectiveness of the sanctions in inducing a change in the behavior of the Russian government remains to be seen. Although the Russian government continues to face a number of economic challenges, many of which are unrelated to sanctions, economic forecasts suggest that the Russian economy is stabilizing and there is some evidence that investor sentiment toward Russia may be improving.

Some U.S. business groups have raised concerns about the economic costs of sanctions on Russia to the United States. Economic growth in the United States has remained strong since the sanctions were imposed. However, newsNews reports indicate that some U.S. firms and industries have been adversely affected. Longer-term, the impact of the sanctions, if they are kept in place, may depend on a number of factors, such as the ability of U.S. firms to find alternative markets, potential spillover effects from a slowdown in Russia, and whether Russia implements additional retaliatory measures against the United States.

Acknowledgments

Gabriel Nelson, Research Assistant, provided research assistance for this report. Jamie Hutchinson, Visual Information Specialist, helped prepare the figures.

Footnotes

 55.
1.

For more information about the crisis in Ukraine, see CRS Report RL33460, Ukraine: Current Issues and U.S. Policy, by [author name scrubbed].
2.

For more information on U.S. sanctions on Russia, see CRS Insight IN10048, U.S. Sanctions on Russia in Response to Events in Ukraine, coordinated by [author name scrubbed]. For information on economic sanctions as a foreign policy tool more broadly, see CRS Report 97-949, Economic Sanctions to Achieve U.S. Foreign Policy Goals: Discussion and Guide to Current Law (pdf), by [author name scrubbed] and [author name scrubbed].
3.

For more information on Russia's agricultural ban, see CRS Insight IN10133, Russia's Ban on Certain Imported Food and Agricultural Goods, by [author name scrubbed].
4.

For more on other legislative proposals for additional sanctions on Russia considered in the 113th Congress, see CRS Insight IN10117, Russia Sanctions: Options, by [author name scrubbed].
5.

The relative ranking of Russia's economy is based on one conventional measure: nominal gross domestic product (GDP) measured in current prices. Alternative measures of GDP, such as adjusted for differences in price levels across countries, may produce different orderings.
6.

Unless otherwise noted, trade data from the U.S. Census Bureau, the Customs Committee of Russia, and Eurostat, as accessed from Global Trade Atlas.
7.

Bank of Russia, "Inward Foreign Direct Investment Positions by Instruments and Geographical Allocation in 2009-2013," http://www.cbr.ru/eng/statistics/print.aspx?file=credit_statistics/dir-inv_in_country_e.htm&pid=svs&sid=ITM_14544.
8.

Bank for International Settlements. Data is for consolidated international bank claims on an ultimate risk basis.
9.

U.S. Bureau of Economic Analysis. Data is U.S. direct investment position abroad on a historical-cost basis.
10.

Bank for International Settlements. Data is for consolidated international bank claims on an ultimate risk basis.
11.

Andrew E. Kramer, "Exxon Reaches Arctic Oil Deal with Russians," New York Times, August 30, 2011; Rosneft, "Rosneft and ExxonMobil to Join Forces in the Artic and Black Sea Offshore, Enhance Co-operation through Technology Sharing and Joint International Projects," Press Release, August 30, 2011, http://www.rosneft.com/news/pressrelease/30082011.html.
12.

Howard Schneider and Holly Yeager, "As Talk of Russia Sanctions Heats Up, Business Draws a Cautionary Line," Washington Post, March 7, 2014; "Visa, MasterCard Will Continue to Work in Russia," Wall Street Journal, May 20, 2014; Robert Wright, "Satellite Pinpoints US's Russian Space Dependence," Financial Times, May 16, 2014.
13.

Myles Udland, "Here's a List of Stocks with Lots of Exposure to Russia," Business Insider, July 17, 2014.
14.

U.S.-Russia Business Council, https://www.usrbc.org/membership/.
15.

The U.S. Commercial Service is the trade promotion arm of the Department of Commerce's International Trade Administration. U.S. Commercial Service, "Doing Business in Russia: Country Commercial Guide for U.S. Companies," 2013, http://www.buyusainfo.net/docs/x_5396902.pdf.
16.

Stuart Clark, "Russia Halts Rocket Exports to US, Hitting Space and Military Programmes," The Guardian, May 15, 2014. For more information, see CRS Insight IN10069, Russian Sanctions Reprisal Against the RD-180 Rocket Engine: Paths Ahead for U.S. National Security Space Launch, by [author name scrubbed].
17.

Jon Ostrower and Andy Pasztor, "Boeing, United Technologies Stockpile Titanium Parts," Wall Street Journal, August 7, 2014.
18.

U.S. Geological Survey, "Mineral Commodity Summaries 2014," http://minerals.usgs.gov/minerals/pubs/mcs/2014/mcs2014.pdf.
19.

Robert Kahn, "Putin's Lehman Moment: Why Sanctions Will Work in Russia," Foreign Affairs, April 10, 2014.

20.

White House, "Statement by the President on New Sanctions Related to Russia," Office of the Press Secretary, September 11, 2014, http://www.whitehouse.gov/the-press-office/2014/09/11/statement-president-new-sanctions-related-russia.
21.

White House, "Statement by the President on the Ukraine Freedom Support Act," Office of the Press Secretary, December 18, 2014, http://www.whitehouse.gov/the-press-office/2014/12/18/statement-president-ukraine-freedom-support-act.

22.

Steven Lee Myers, "Private Bank Fuels Fortunes of Putin's Inner Circle," New York Times, September 27, 2014; Carol Matlack, "Why the U.S. is Targeting the Business Empire of a Putin Ally," Bloomberg Businessweek, April 28, 2014.
23.

For example, see "Economic Sanctions: Effectiveness as Tools of Foreign Policy," Government Accountability Office (GAO), February 19, 1992, http://www.gao.gov/products/NSIAD-92-106.
24.

For more on EU sanctions, see CRS Insight IN10129, U.S.-EU Cooperation on Ukraine and Russia, by [author name scrubbed] and [author name scrubbed].
25.

Sandrine Rastello and Helene Fouquet, "G-7 Nations Said to Oppose New World Bank Russia Projects," Bloomberg, August 1, 2014; EBRD, "EBRD Statement on Operation Approach in Russia," EBRD Press Release, July 23, 2014, http://www.ebrd.com/english/pages/news/press/2014/140723b.shtml.
26.

For more information, see CRS Insight IN10133, Russia's Ban on Certain Imported Food and Agricultural Goods, by [author name scrubbed].
27.

In August 2014, Russia closed 12 McDonald's restaurants. Although officials cite health reasons for the closures, critics argue that the closures were a response to the sanctions. In October 2014, more than 200 McDonald's restaurants, out of 440 in Russia, were under investigation by the Russian government. In December 2014, the closed McDonald's were allowed to re-open. See Justin Worland, "McDonald's Objects to Russia Restaurant Closures," Time, August 29, 2014; Carol Matlack, "Putin's Latest Target: More than 200 Russian McDonald's," Bloomberg Businessweek, October 20, 2014; Jessica Wohl, "Most McDonald's in Russia Reopen," Chicago Tribune, December 9, 2014.
28.

Stuart Clark, "Russia Halts Rocket Exports to US, Hitting Space and Military Programmes," The Guardian, May 15, 2014.
29.

For example, see Alexander Kolyandr, "Russia's Putin Slams Sanctions as Breach of WTO Rules," Wall Street Journal, September 18, 2014.
30.

For example, see Kathrin Hille and Shawn Donnan, "Russia Threatens US with WTO Action over Crimea Sanctions," Financial Times, April 16, 2014; "USTR Signals Russia Ag Ban Violates WTO Rules; Faults Procurement Policies," Inside U.S. Trade, January 8, 2015.
31.

Unless otherwise noted, macroeconomic data (for example, on growth, inflation, and debt levels) is from the IMF, World Economic Outlook, October 2014.
32.

"Geopolitical Risks Cloud Future of Russian Economy," IMF Survey, June 30, 2014.
33.

"Russia: Analysis," U.S. Energy Information Administration, March 12, 2014, http://www.eia.gov/countries/cab.cfm?fips=rs.
34.

This includes the top two officials at the IMF: Managing Director Christine Lagarde and First Managing Director David Lipton. See Justin Scuiletti, "IMF Head Lagarde: Russia Feeling the Effects of U.S., European Sanctions," PBS, April 2, 2014; William Mauldin, "U.S. Increases Pressure on Russia over Ukraine as Europe Holds Back," Wall Street Journal, April 13, 2014. For other examples of policymakers and analysts attributing sanctions to contributing to Russia's economic challenges, see Paul Feinberg, "Head of U.S. Treasury Tells Students Sanctions against Russia are Having Impact," UCLA Newsroom, September 18, 2014; Robert Khan, "October Monthly: Breaking the Sanctions Code," Council on Foreign Relations Macro and Markets, October 17, 2014; Menzie Chinn, "Russia Under Pressure," Econbrowser, October 9, 2014.
35.

Bank of Russia, "Net Inflows/Outflows of Capital by Private Sector for 2005-20014," http://www.cbr.ru/eng/statistics/print.aspx?file=credit_statistics/capital_new_e.htm.
36.

Alexander Kolyandr and Andrey Ostroukh, "Russia Plans Emergency Fund for Companies Hurt by Ukraine Sanctions," Wall Street Journal, September 15, 2014.
37.

Sally Bakewell and Stephen Morris, "Putin Sanctions Drive Away Banks as Loans Dry Up: Russia Credit," Bloomberg, August 4, 2014.
38.

Bank of Russia, "Data on the Bank of Russia Currency Interventions (Monthly)," http://www.cbr.ru/eng/hd_base/?PrtId=valint.
39.

"Ruble's Fall and Food Import Bands Send Inflation Even Higher," Moscow Times, October 6, 2014; Rob Wile, "Food Prices Have Begun Skyrocketing in Parts of Russia," Business Insider, September 1, 2014.
40.

Mark Adomanis, "Russian Inflation is Increasing and That Could Be A Huge Problem for the Kremlin," Forbes, September 16, 2014.

41.

IMF, World Economic Outlook Update, January 2015, http://www.imf.org/external/pubs/ft/weo/2015/update/01/pdf/0115.pdf.
42.

Bank of Russia, "International Reserves of the Russian Federation," http://cbr.ru/eng/hd_base/default.aspx?Prtid=mrrf_m; IMF, World Economic Outlook, October 2014.
43.

Frances Coppola, "The Great Russian Bank Bailout," Forbes, December 26, 2014.
44.

For example, see "Not Quite All there?," Economist, November 22, 2014.
45.

Matthew Cowley, "Russia to Cut 2015 Budget by Around 10% Following Decline in Oil Price," Wall Street Journal, January 21, 2015.
46.

For example, the U.S. Chamber of Commerce and the National Association of Manufacturers ran ads in the New York Times, the Wall Street Journal, and the Washington Post, warning about the potential implications of sanctions on Russia for the United States. See Mike Dorning, "Business at Odds with Obama Over Russia Sanctions Threat," Bloomberg News, June 24, 2014. In September 2014, USA*Engage, a coalition of manufacturing, agricultural, and services producers sponsored by the National Foreign Trade Council, cautioned that "U.S. sanctions are exacting substantial collateral damage to U.S. investments and operations in Russia across sectors." See "USA*Engage Opposes S. 2828, 'Ukraine Freedom Support Act of 2014,'" USA*Engage, September 18, 2014.
47.

Clifford Krauss, "Exxon Halts Oil Drilling in Waters of Russia," New York Times, September 16, 2014.
48.

Ryan Holeywell, "Russia Sanctions May Squeeze Oil Services Profits," Houston Chronicle, August 12, 2014.
49.

Adam Shell, "U.S. Companies Get Hurt by Sanctions Targeting Russia," USA Today, May 14, 2014.
50.

However, the restriction resulted in a run these types of rifles already in the United States (and thus not subject to the restriction), providing a short-term boost to U.S. gun dealers. Joshua Green, "Banned by U.S. Sanctions, AK-47s are Going, Going, Gone," Bloomberg Businessweek, September 4, 2014.
51.

Natalia Kaurova and Anastasia Nesvetailova, "Making a Non-Western Payment Card System, in Russia," FT Alphaville, April 25, 2014.
52.

Elizabeth Dexheimer, "MasterCard CEO Sees Russia Having Small Impact on Profit," Bloomberg, May 1, 2014; Elizabeth Dexheimer, "Visa Profit Beats Estimates as Card Spending Climbs," Bloomberg, July 25, 2014.
53.

"Too Smart by Half?: Effective Sanctions Have Always Been Hard to Craft," Economist, September 6, 2014.
54.

CRS Insight IN10133, Russia's Ban on Certain Imported Food and Agricultural Goods, by [author name scrubbed].
55.

For example, see Lisa Murkowski, "Alaska Delegation: U.S. Should Push Back Against Russian Seafood Boycott," press release, August 26, 2014, http://www.murkowski.senate.gov/public/index.cfm/pressreleases?ID=532b03cb-182a-46b2-b3e0-4e41f1e12199.
56.

Ross Courtney, "Russia Sanctions Affect Washington Apples, Pears," Yakima Herald, August 8, 2014.
57.

ING, "Russian Sanctions: 130,000 European Jobs at Stake," ING International Trade Special Report, August 2014.
58.

U.S. Census Bureau, as accessed from Global Trade Atlas.
59.

IMF, World Economic Outlook Update, January 2015, http://www.imf.org/external/pubs/ft/weo/2015/update/01/pdf/0115.pdf.
60.

U.S. Department of Labor, Bureau of Labor Statistics.
61.

"International Producers Risk Losing Russian Market over Sanctions," RT, November 13, 2014.
62.

Olga Razumovskaya, "An Isolated Russia Signs Business, Finance Pacts with China," Wall Street Journal, October 13, 2014.
63

Author Contact Information

[author name scrubbed], Specialist in International Trade and Finance ([email address scrubbed], [phone number scrubbed])

Acknowledgments

Amber Wilhelm, Visual Information Specialist, helped prepare the figures.

Footnotes

1.

For more information on Ukraine-related sanctions, see CRS In Focus IF10552, U.S. Sanctions on Russia Related to the Ukraine Conflict, coordinated by Cory Welt. A number of Russian individuals and entities are also subject to economic sanctions related to human rights violations, corruption, conflict in Syria, terrorism, transnational crime, and weapons proliferation. For more information on the different types of sanctions on Russia individuals and entities, see CRS Insight IN10634, Overview of U.S. Sanctions Regimes on Russia, by Cory Welt and [author name scrubbed] and CRS In Focus IF10576, The Global Magnitsky Human Rights Accountability Act, by [author name scrubbed]. In December 2016, the Obama Administration imposed additional sanctions on Russian individuals and entities in response to malicious cyber activity, including relating to the election process. For more information, see CRS Insight IN10635, Russia and the U.S. Presidential Election, by [author name scrubbed] and Cory Welt.
2.

For example, see S. 94, Senator John McCain, "Statement by SASC Chairman John McCain on President Trump's Phone Call with Vladimir Putin," January 27, 2017.
3.

Ambassador Nikki Haley, "Remarks at a UN Security Council Briefing on Ukraine," U.S. Mission to the United Nations, February 2, 2017, at https://usun.state.gov/remarks/7668.
4.

White House, "Statement by the President on New Sanctions Related to Russia," Office of the Press Secretary, September 11, 2014. For more on the Executive Orders and legislation on Ukraine-related sanctions, see CRS In Focus IF10552, U.S. Sanctions on Russia Related to the Ukraine Conflict, coordinated by Cory Welt.

5.

No designations have been made to date under P.L. 113-95. The President issued a signing statement with P.L. 113-272, stating that he would not impose sanctions under the act but that it "gives the Administration additional authorities that could be utilized, if circumstances warranted." For more on the Executive Orders and legislation on Ukraine-related sanctions, and resulting designations, see CRS In Focus IF10552, U.S. Sanctions on Russia Related to the Ukraine Conflict, coordinated by Cory Welt.
6.

Steven Lee Myers, "Private Bank Fuels Fortunes of Putin's Inner Circle," New York Times, September 27, 2014; Carol Matlack, "Why the U.S. is Targeting the Business Empire of a Putin Ally," Bloomberg Businessweek, April 28, 2014.
7.

Sandrine Rastello and Helene Fouquet, "G-7 Nations Said to Oppose New World Bank Russia Projects," Bloomberg, August 1, 2014; EBRD, "EBRD Statement on Operation Approach in Russia," EBRD Press Release, July 23, 2014.
8.

For more on the G-20, see CRS Report R40977, The G-20 and International Economic Cooperation: Background and Implications for Congress, by [author name scrubbed].
9.

For example, see Alexander Kolyandr, "Russia's Putin Slams Sanctions as Breach of WTO Rules," Wall Street Journal, September 18, 2014.
10.

For example, see Kathrin Hille and Shawn Donnan, "Russia Threatens US with WTO Action over Crimea Sanctions," Financial Times, April 16, 2014; "USTR Signals Russia Ag Ban Violates WTO Rules; Faults Procurement Policies," Inside U.S. Trade, January 8, 2015.
11.

Unless otherwise noted, macroeconomic data (for example, on growth, inflation, and debt levels) is from the IMF, World Economic Outlook, October 2014.
12.

"Geopolitical Risks Cloud Future of Russian Economy," IMF Survey, June 30, 2014.
13.

Federal Reserve Bank of St. Louis, Global Price of Brent Crude, Accessed February 2, 2017.
14.

For example, see IMF, "IMF Staff Concludes Visit to Russian Federation," November 29, 2016.
15.

International Monetary Fund, World Economic Outlook, October 2016; Central Bank of Russia statistics, World Bank, Russia Economic Report 35, April 6, 2016.
16.

Federal Reserve Bank of St. Louis, Global Price of Brent Crude, Accessed February 2, 2017.
17.

International Monetary Fund, Russian Federation: Staff Report for the 2016 Article IV Consultation, July 2016; International Monetary Fund, World Economic Outlook, October 2016.
18.

World Bank, Russia Economic Report 36, November 9, 2016.
19.

Bank for International Settlements, Consolidated Banking Statistics. Data is for consolidated international bank claims on an ultimate risk basis, accessed on February 2, 2017. Reporting countries include Australia, Austria, Belgium, Canada, Chile, Chinese Taipei, Finland, France, Germany, Greece, Hong Kong, Italy, Japan, the Netherlands, Norway, Portugal, Singapore, South Korea, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States. It does not include several large emerging markets, like Brazil or China.
20.

Ilya Khrennikov, "Big Western Companies are Pumping Cash into Russia," Bloomberg, November 22, 2016.
21.

International Monetary Fund, Russian Federation: Staff Report for the 2016 Article IV Consultation, July 2016.
22.

Pavel Koshkin and Ksenia Zubacheva, "The World of the Economic Crisis in Russia Lies Ahead," Russia Direct, January 22, 2016.
23.

International Monetary Fund, Russian Federation: Staff Report for the 2015 Article IV Consultation, August 2015, pp. 5.
24.

Robin Emmott, "Sanctions Impact on Russia to be Longer Term, U.S. Says," Reuters, January 12, 2016.
25.

European Parliamentary Research Service, "Sanctions over Ukraine: Impact on Russia," March 2016.
26.

Evsey Gurvich and Ilya Prilepskiy, "The Impact of Financial Sanctions on the Russian Economy," Russian Journal of Economics, 2015, pp. 359-385.
27.

Nikolaus Blome, Kai Kiekmann, and Daniel Biskup, Interview with Putin, Bild, November 1, 2016.
28.

Max Seddon and Elaine Moore, "Russia Plans First Bond Issuance Since Sanctions," Financial Times, February 7, 2016.
29.

Daniel Ahn and Rodney Ludema, "Measuring Smartness: Understanding the Economic Impact of Targeted Sanctions," Office of the Chief Economist, U.S. Department of State, December 2016, Working Paper 2017-01.
30.

For example, the U.S. Chamber of Commerce and the National Association of Manufacturers ran ads in the New York Times, the Wall Street Journal, and the Washington Post, warning about the potential implications of sanctions on Russia for the United States. See Mike Dorning, "Business at Odds with Obama Over Russia Sanctions Threat," Bloomberg News, June 24, 2014. In September 2014, USA*Engage, a coalition of manufacturing, agricultural, and services producers sponsored by the National Foreign Trade Council, cautioned that "U.S. sanctions are exacting substantial collateral damage to U.S. investments and operations in Russia across sectors." See "USA*Engage Opposes S. 2828, 'Ukraine Freedom Support Act of 2014,'" USA*Engage, September 18, 2014.
31.

The relative ranking of Russia's economy is based on one conventional measure: nominal gross domestic product (GDP) measured in current prices. Alternative measures of GDP, such as adjusted for differences in price levels across countries, may produce different orderings.
32.

In this report, trade data is from the U.S. Census Bureau, the Customs Committee of Russia, and Eurostat, as accessed from Global Trade Atlas, unless otherwise noted. U.S. investment data is from the U.S. Bureau of Economic analysis (on a historical-cost basis).
33.

U.S. Bureau of Economic Analysis. Data show U.S. direct investment position abroad on a historical-cost basis.
34.

The 2016 report by the U.S. Trade Representative on the implementation and enforcement of Russia's WTO commitments notes that broadly, Russia's actions continued to depart from the WTO's core tenets of liberal trade, transparency, and predictability in favor of inward-looking, import-substitution economic policies. U.S. Trade Representative, 2016 Report on the Implementation and Enforcement of Russia's WTO Commitments, December 2016.
35.

Andrew E. Kramer, "Exxon Reaches Arctic Oil Deal with Russians," New York Times, August 30, 2011; Rosneft, "Rosneft and ExxonMobil to Join Forces in the Artic and Black Sea Offshore, Enhance Co-operation through Technology Sharing and Joint International Projects," Press Release, August 30, 2011.
36.

Howard Schneider and Holly Yeager, "As Talk of Russia Sanctions Heats Up, Business Draws a Cautionary Line," Washington Post, March 7, 2014; "Visa, MasterCard Will Continue to Work in Russia," Wall Street Journal, May 20, 2014; Robert Wright, "Satellite Pinpoints US's Russian Space Dependence," Financial Times, May 16, 2014.
37.

Myles Udland, "Here's a List of Stocks with Lots of Exposure to Russia," Business Insider, July 17, 2014.
38.

U.S.-Russia Business Council.
39.

Clifford Krauss, "Exxon Halts Oil Drilling in Waters of Russia," New York Times, September 16, 2014.
40.

Irina Slav, "Russian Sanctions Have Cost Exxon over $1 Billion," Business Insider, October 17, 2016.
41.

Ryan Holeywell, "Russia Sanctions May Squeeze Oil Services Profits," Houston Chronicle, August 12, 2014.
42.

Adam Shell, "U.S. Companies Get Hurt by Sanctions Targeting Russia," USA Today, May 14, 2014.
43.

However, the restriction resulted in a run these types of rifles already in the United States (and thus not subject to the restriction), providing a short-term boost to U.S. gun dealers. Joshua Green, "Banned by U.S. Sanctions, AK-47s are Going, Going, Gone," Bloomberg Businessweek, September 4, 2014.
44.

Emma Ashford, "Not-So-Smart Sanctions: The Failure of Western Restrictions Against Russia," Foreign Affairs, January/February 2016.
45.

Natalia Kaurova and Anastasia Nesvetailova, "Making a Non-Western Payment Card System, in Russia," FT Alphaville, April 25, 2014.
46.

Elizabeth Dexheimer, "MasterCard CEO Sees Russia Having Small Impact on Profit," Bloomberg, May 1, 2014; Elizabeth Dexheimer, "Visa Profit Beats Estimates as Card Spending Climbs," Bloomberg, July 25, 2014.
47.

Aaron Smith and Abigail Brooks, "Kalashnikov Cranking up AK-47 Factory in Florida," CNN, January 27, 2016.
48.

"Too Smart by Half?: Effective Sanctions Have Always Been Hard to Craft," Economist, September 6, 2014.
49.

Global Trade Atlas.
50.

For example, see Lisa Murkowski, "Alaska Delegation: U.S. Should Push Back against Russian Seafood Boycott," press release, August 26, 2014.
51.

Ross Courtney, "Russia Sanctions Affect Washington Apples, Pears," Yakima Herald, August 8, 2014.
52.

U.S. Chicken Industry Statement on Russian Ban on U.S. Chicken Imports, August 6, 2014.
53.

"International Producers Risk Losing Russian Market over Sanctions," RT, November 13, 2014.
54.

Olga Razumovskaya, "An Isolated Russia Signs Business, Finance Pacts with China," Wall Street Journal, October 13, 2014.

"Russia's Import Ban Means Big Business for Latin America," RT, August 7, 2014.