In recent years the Democrats have gained something of a reputation as the ‘anti-Russia’ party, accusing the country of conspiring to help Trump “steal” the presidency in 2016. Now both the party and the FBI have again said that Russia is using disinformation to exploit a bitterly divided US society, undermine democracy and promote Trump. Indeed, Biden himself has labelled Russia a US “opponent” and warned Putin will pay an “economic price” for alleged meddling. 

Whether Russia can have any meaningful impact on the actual electoral outcome is open to question. Given current domestic divisions in the US (which have nothing to do with Russia), you could argue that Russia and the other countries accused of interference have little work left for them. However, Biden has long used anti-Russia rhetoric as a stick to beat Trump with and he has set the stakes high: if he doesn’t toughen sanctions, his opponents – including hawkish Republicans – will denounce him as weak and hypocritical. 

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Harsh sanctions possible

Russia is already subject to US/EU sanctions targeting major sectors such as energy, defence and finance, limiting Moscow’s access to western debt markets, and to the financing and technology it needs to develop its energy sector, which contributes around 40% of the Russian budget. 

Biden has several options for further punishment, including deploying some pretty draconian bills yet to be signed into law. Take, for example, the bipartisan Defending American Security from Kremlin Aggression Act (DASKA), which includes proposals to sanction companies participating in global energy projects involving Russian-owned entities, as well as companies providing various goods and services to help Russia develop its oil resources. 

Democratic congressmen also introduced a bill in October to target rouble-denominated treasury bonds (OFZs). If passed, this would mean that US firms and individuals would no longer be able to buy Russian sovereign debt. Russia’s low levels of debt-to-GDP and substantial gold and foreign currency reserves have historically provided a strong buffer against such measures, but Moscow’s increasing borrowing to mitigate the pandemic’s economic impact would sharpen the pain.

Biden the pragmatist?

The reality is that, if he wins, Biden is likely to be more measured on Russia than his statements might suggest: domestic issues such as Covid-19, economic stimulus and race relations will top his agenda, at least for the first year. Extensive, market-moving sanctions wouldn’t help him spur an economic recovery, and would instead risk alienating US allies – particularly European countries such as Germany who have closer economic ties to Russia. With a no-deal Brexit looming and a more fragmented Europe, it is hard to imagine the EU and the US could agree on significantly harsher measures on Russia. 

There are also domestic constraints: the US Treasury has become more cautious about sanctioning groups or individuals highly integrated into global markets. It learnt its lesson in 2018 when imposing restrictions on Russian aluminium giant Rusal – the disruption to global aluminium supplies prompted the Treasury to lift the measures once Oleg Deripaska, a sanctioned oligarch, relinquished control. 

Biden will be wary of overreaching again. Full implementation of DASKA, for example, would trigger concern among investors about potential disruption to global energy supplies and oil price volatility. This is the last thing Biden needs in a financial crisis.

Finally, Biden will need to work with Putin to achieve some of his key foreign policy goals, including restoring the Iran nuclear deal, withdrawing US troops from Afghanistan, and renewing the bilateral New START arms deal. We are therefore, in the short term, likely to see more symbolic sanctioning of individuals, rather than the implementation of sanctions that can actually hurt the Russian economy. 

Impact on Russian FDI

Western sanctions have caused a substantial decline in FDI into Russia since 2014, and things have got even worse this year owing to Covid-19 and low oil prices, as suggested by figures from the Central Bank of Russia.

As Ivan Tkachev, economics editor at Russian business daily RBC, commented to us, potential sanctions on OFZs wouldn’t only lead to portfolio outflows, they could also affect FDI, possibly even prompting some longer-term investors to reconsider their investments.

But even if Biden does prove more cautious as we expect, the prospect of sanctions will continue to hang over Russia, keeping sentiment among Western investors suppressed. Meanwhile, growing interest among Chinese companies investing in Russia is set to continue. Chinese companies have been second only to their German peers among investors in Russia since 2015, when measured by the number of FDI projects, according to the FT-owned investment monitor fDi Markets.

Whoever wins the US presidency, Russia and China will continue to see themselves as in the vanguard of the fight against US hegemony, and will continue to buttress their loose alliance with mutual trade and investment.  A real and prolonged ‘reset’ between Russia and the US is still a long way off.

Chris Tooke is a director and Livia Paggi is a partner and head of political risk at consultancy GPW.