Having let the dust settle on an eventful June 20 in Washington, D.C., I thought it useful to reflect on my own views over what actually happened and the significance – for Russia-U.S. relations, and I guess U.S. politics and also Ukraine.
I think it is fair to say that what we did see was a fairly well choreographed bit of theatre being played out, with Ukrainian President Petro Poroshenko invited to the White House, dropping in on U.S. President Donald J. Trump, and also taken along by Vice President Mike Pence to the National Security Council to H.R. McMasters and his team just at the same time as the U.S. Treasury announced a new sanctions iteration on Russia. Happy faces all around.
And all this came on the day when the Russian sovereign came to market with new 10-year and 30-year Eurobonds, so the optics were that the new sanctions iteration would not be particularly helpful to Moscow in the context of its international capital markets activity.
The messaging from the Trump administration was hence that it is still tough on Russia, just taking on the baton therein from the Barack Obama administration, and yet supportive of Ukraine.
It might be argued that all the above was aimed at pulling the attack dogs off Trump with his own difficulties around Russiagate/Flynngate/Comeygate, et al. – by Trump finally showing his Russia mettle.
Actually my read herein is a bit different.
Sure the above could play better for Trump in domestic politics – and buy him some political space therein.
But my read is the more important strategy on June 20 was not to further isolate Russia, but actually to keep doors ajar with Russia, and flexibility for negotiation.
And therein the key motive for events in D.C., at least from the Trump administration perspective. The aim was to head off ongoing efforts by Congress to tighten and codify Russia sanctions.
I think the view in the Trump administration is that the codification of sanctions would actually weaken their hands in negotiations with Moscow in trying to reach some kind of settlement over Ukraine, as it would make rewarding Russia for progress/concessions therein almost impossible to deliver.
Sanctions on Russia would become fixed/institutionalized and terribly difficult to remove.
In effect it would fix the current poor state of Russia-U.S. relations likely for years, if not decades, and send a very aggressive and negative message to Moscow, just as the Putin regime, and others, are struggling to understand (and deal with) the new Trump administration. It might also risk escalation from Russia against the US on many fronts, including in Ukraine.
So I think what we actually saw yesterday was an attempt to demonstrate to U.S. Congressional hawks that the Trump administration is sufficiently tough on Russia and also supportive of Ukraine, and hence a plea to cut the administration some slack over Russia/Ukraine, by backing down over the move to codify sanctions.
This was the key mission from the Trump administration through events on June 20.
Some (including the Ukrainians) will welcome the sanctions announced on June 20 from the U.S. Treasury.
But the reality is these hardly represented a “tightening” of sanctions, but were more “maintenance” sanctions, trying to ensure the effectiveness of existing sanctions in place.
A few more individuals and corporates were added, but the impact of these will be pretty peripheral on the Russian economy – more sectors/assets classes were not sanctioned, so this was not really a deepening, tightening or extension of sanctions.
And I think here the administration was eager to signal that to Moscow.
This was meant to be a difficult balancing act of doing something, or enough, on the sanctions front to encourage the U.S. Congress to back away from codifying sanctions but not enough to cause further tensions in relations with Russia.
I am not sure it achieved its aim with Congress, but surely will have assured Moscow – If they understand the political predicament that the Trump administration now finds itself with the risks from the codification of sanctions.
And remember here that Congress has only moved to codify sanctions as it does not really trust the Trump administration over Russia/Ukraine policy. Let’s see if Congress enjoyed the performance on June 20 from Trump, Pence, McMasters — with the supporting cast of Poroshenko, et al. I have my doubts whether U.S. Sen. John McCain and others will buy this one. But let’s see.
And I am not sure that Poroshenko was aware of the supporting role he was playing on June 20 in trying to head off the codification of sanctions. He seemed happy to get to shake Trump’s hand, putting one over Putin from a PR perspective, in advance of the slated Trump-Putin meeting set for Germany next month.
The Ukrainian angle is that they got some quality time with the Trump team, and were able to impress on them their case, over that of Putin – and repair some of the damage done by the Poroshenko administration’s strong backing of Hillary Rodham Clinton against Donald Trump in the U.S. election campaign.
I am not sure what else Poroshenko got from his long haul journey for a drop-in visit to the White House – no discussion even of the U.S. administration arming the Ukrainians and he had to endure Trump’s lack of attention to detail in his characterization of Ukraine as “the Ukraine,” which will always grate with the Ukrainian side (maybe someone in the Trump administration should lend the POTUS a copy of Timothy Snyder’s book “Bloodlands” as introductory reading on Ukraine).
Poroshenko did have some time with Christine LaGarde, managing director from the International Monetary Fund, and I wonder therein if we might see some softening in the International Monetary Fund position over pension reform, land reform, et al. and other structural reform benchmarks required for the release of the next loan tranche.
Personally I cannot see the current pension reform draft of hiking pensions this year, but then only delivering parametric reform after the next elections (2020) as being particularly convincing, while land reform looks more likely to be logjammed in the Rada.
And as is now the joke in Kyiv, the anti-corruption agenda is more like sports fishing with individuals suspected of wrongdoing arrested, but then all too quickly released. No one seems to go to jail in Ukraine for corruption, which still raises credibility issues in the minds of the general population as to the seriousness of the process.
But a willingness of the Ukrainian side to again sit down with Russia, brokered by the Tillerson, et al. might just be enough to get the IMF to look the other way for the next review.
I guess it could be argued that the codification of sanctions on Russia might not be that great for Ukraine, if it means a hardening of the Russian position, and potential for re-escalation in Donbas, et al.
The Trump team would argue that by stalling on the codification of sanctions, this leaves the way open for a new set of negotiations to resolve the Donbas issue.
And therein there has been talk of the U.S. getting involved, in a resurrection of the Victoria Nuland-Vladislav Surkov process, and perhaps mediating some kind of Russia-Ukraine deal, beyond the scope of the current Minsk process.
The Europeans might not like that given they spent such long nights in Minsk, on the Minsk process, but the reality is that from a Russian and Ukrainian perspective (and most neutral observers), the Minsk process is not working.
And both now seem to favor US involvement/brokering some kind of deal.
I actually think that any such deal will be devilishly difficult to do – as long as Putin continues to demand strategic dominance over Ukraine, and bringing Ukraine back under Russia’s sphere of influence.
That is a no-go for any Ukrainian politician.
I think Poroshenko knows that but likely will go through the motions with the Trump administration to try and cut a deal with Russia, just to keep Western support, but ultimately knowing that a deal simply cannot be done at this juncture which can be sold back in Ukraine – unless Putin walks away from his strategic game plan towards Ukraine, and accepts that he has lost Ukraine forever.
Finally, on Russia, I think the key thing to watch for the next few weeks are oil prices and whether Congress buys the Trump act and steps back from the codification of sanctions.
If they do not and sanctions are codified I think this will be a major long-term negative for Russia, ensuring the continuation of the stagnation/decline of the Russian economy under Putin, and I guess also raising the prospect of continued competition/conflict with the U.S., and hence heightened geopolitical risks around Russia which likely will just deter investment and promote further capital flight out of Russia.
