Biden imposes tough new sanctions on Moscow

US president Joe Biden has imposed sweeping sanctions against Russia including long-feared measures targeting its government debt in a sharp escalation of Washington’s confrontation with Moscow.

The first anti-Russian measures from the Biden administration also included the expulsion of 10 Russian diplomats and sanctions against 38 entities, individuals and companies accused of taking part in efforts to interfere in US elections and conducting cyber attacks.

On Wednesday, the US for the first time formally blamed SVR, Russia’s foreign intelligence service, for the SolarWinds hack, which affected at least nine federal agencies and 100 companies. One senior administration official told reporters the hack gave Russia “the ability to spy on or potentially disrupt more than 16,000 computer systems worldwide”.

News of the measures sparked a sell-off in Russian assets and a warning from the Kremlin that the sanctions would harm efforts to reduce tensions between the two countries.

The sanctions banned US financial institutions from trading in newly issued Russian state debt, known as OFZs, and bonds issued by the Russian central bank and National Wealth Fund. The ban affects debt issued after June 14.

Measures targeting state debt have long been viewed as a “nuclear option” for the US and a milestone in Washington’s sanctions regime against Russia, which has steadily expanded since the first round of restrictions were imposed by the Obama administration in response to Moscow’s 2014 annexation of Crimea.

In remarks at the White House on Thursday afternoon, Biden played down the severity of the actions, saying the US wanted a stable, predictable relationship and was “not looking to kick off a cycle of escalation and conflict with Russia”.

“I was clear with President [Vladimir] Putin that we could have gone further, but I chose not to do so,” Biden said, referring to recent telephone conversations between the leaders. The US president said he was still prepared to take further action to respond to Russian aggression “in kind”.

The senior administration official said the sanctions package would “impose costs for Russian government actions that seek to harm us”. The official added some US responses would “remain unseen”. The moves came after strong condemnation from Washington and other Nato powers over Russia’s heavy military build-up close to its border with Ukraine.

The package included sanctions against 32 individuals and organisations accused of interfering in recent US elections and six Russian technology companies alleged to support the country’s intelligence services in view of the SolarWinds hack.

The rouble dropped as much as 2.2 per cent in early trading on Thursday to about 77.5 to the US dollar. It trimmed some of its initial losses and was down 0.7 per cent to trade at 76.41 by 2pm London time.

The decline in the value of the Russian currency erased gains made earlier in the week after a Tuesday call between Biden and Putin, in which the leaders discussed a potential joint summit aimed at easing tensions.

Moscow’s benchmark Moex stock index was down 0.6 per cent, while the market’s dollar-denominated RTS index was 1.8 per cent lower.

The country’s benchmark 10-year bond yield rose 0.19 of a percentage point to 7.24 per cent, a touch below recent highs. Bond yields rise as prices decline.

The EU and Nato both issued statements expressing “solidarity” with the US on the sanctions.

Dominic Raab, Britain’s foreign secretary, said the US and UK were aware of Russia’s actions to undermine their democracies. “[We] are calling out Russia’s malicious behaviour, to enable our international partners and businesses at home to better defend and prepare themselves against this kind of action,” he said. “The UK will continue to work with allies to call out Russia’s malign behaviour where we see it.”

The UK’s security review, published last month, identified Russia as the “most acute threat” to its national and collective security, citing “hostile and destabilising” activity by Moscow.

Russia’s foreign ministry responded to news of the sanctions by summoning the US ambassador to Moscow for what it said would be a “difficult” discussion.

“Such aggressive behaviour will certainly be strongly rebuffed, and the response to sanctions will be inevitable,” ministry spokesperson Maria Zakharova told reporters. “Washington must realise that it will pay for the degradation of bilateral relations.”

The Kremlin said earlier that sanctions could scupper efforts to arrange the planned summit between the two leaders.

However, Biden said he thought the meeting would still take place in Europe this summer, adding teams from both countries were discussing the event.

His administration began drawing up measures to punish Russia following the SolarWinds hack, which officials said at the time was “likely of Russian origin”.

Russia has denied involvement and said it had never attempted to influence foreign elections.

The US has also condemned the recent arrest and jailing of Russian opposition activist Alexei Navalny after his recovery from a suspected assassination attempt, and accused Moscow of threatening Ukraine by deploying tens of thousands of troops to the country’s border.

A senior administration official said the US was not taking any countermeasures in view of a US intelligence assessment that concluded with only “low to moderate confidence” that Russian intelligence officers had paid the Taliban to attack US and allied personnel in Afghanistan in 2019 and perhaps earlier. The official said the US would instead issue “strong direct messages” to Moscow.

The share of Russia’s rouble-denominated Treasury bonds held by foreigners fell to a more than five-year low of 20.2 per cent in March, down from more than 30 per cent a year earlier.

The sanctions will test the Russian finance ministry’s plans to soften the impact of restrictions against its sovereign debt. Potential countermeasures include a pause in issuance and regulatory easing for Russian borrowers, deputy finance minister Vladimir Kolychev told the FT late last year.

The ministry was also confident that, if needed, it could replace foreign OFZ holders entirely through domestic demand.

After cancelling a bond sale in March due to market volatility and sanctions fears, Russia sold a record Rbs354bn ($4.6bn) in OFZs a week later, with most of the issue going to Kremlin-run banks.

Additional reporting by Max Seddon in Moscow, Lauren Fedor in Washington and Hannah Murphy in San Francisco