Russian PM: "New US Sanctions Would Be Declaration Of Economic War"

www.zerohedge.com

As diplomatic tensions again escalate between the US and Russia following the announcement of new sanctions against Moscow earlier this week by the Trump administration, Russia's prime minister Dmitry Medvedev warned the United States on Friday that Russia would regard any U.S. move to curb the activities of its banks as a declaration of economic war which it would retaliate against.

Medvedev said Moscow would take economic, political or other retaliatory measures against the United States if Washington targeted Russian banks.

"If they introduce something like a ban on banking operations or the use of any currency, we will treat it as a declaration of economic war. And we’ll have to respond to it accordingly – economically, politically, or in any other way, if required," Medvedev said during a trip to the Kamchatka region.

"Our American friends should make no mistake about it," he cautioned.

Medvedev also noted that Russia has a long history of surviving economic restrictions and never caved in to the pressure in the past. "Our country had been living under constant pressure through sanctions for the last hundred years," Medvedev said, accusing the US and its allies of employing sanctions to undercut global competition. "Nothing has changed."

The Russian PM said that by targeting Russia’s gas exports to Europe, Washington wants to push its own LNG shipments to the continent. “It’s an absolutely nonmarket anti-competition measure aimed at strangling our capabilities.” Medvedev also pointed out that the US is simultaneously imposing tariffs on China. “The Chinese, obviously, don’t like it. No one does. And our goal is to resist all these measures.”

According to Reuters, Medvedev's statement reflects Russia's fears over the impact of new restrictions on its economy and assets, including the rouble which tumbled 6% of its value this week on sanctions jitters. With economists expecting the economy to grow by 1.8% this year, some fear that if new sanctions proposed by Congress and the State Department are implemented in full, growth would be almost cut to zero.

On Wednesday, the State Department announced a new round of sanctions targeting Russian exports of dual-purpose electronics and other national security-controlled equipment, which will come into effect on August 22, and which pushed the Russian currency to two-year lows and sparked a wider sell-off over fears Russia was locked in a spiral of never-ending sanctions.

Separate legislation introduced last week in draft form by Republican and Democratic senators, dubbed “the sanctions bill from hell” by one of its backers, proposes curbs on the operations of several state-owned Russian banks in the United States and restrictions on their use of the dollar.

Moscow’s strategy of trying to improve battered U.S.-Russia ties by attempting to build bridges with President Trump backfired after U.S. lawmakers launched a new sanctions drive last week because they fear Trump is too soft on Russia. That in turn piled pressure on Trump to show he is tough on Russia ahead of mid-term elections and the possible release of Mueller's report on Russian collusion.

The problem for Russia is that there is little it could do to hit back at the United States without damaging its own economy or depriving its consumers of sought after goods as the sanctions episode of 2014 showed, and officials in Moscow have made clear they do not want to get drawn into what they describe as a mutually-damaging tit-for-tat sanctions war, similar to the one the US is waging with China.

The threat of more U.S. sanctions kept the rouble under pressure on Friday, sending it crashing past two-year lows at one point before it recouped some of its losses.

Commenting on the currency slide, the Russian central bank said the rouble’s fall to multi-month lows on news of new U.S. sanctions was a "natural reaction" and that it had the necessary tools to prevent any threat to financial stability. One tool it said it might use was limiting market volatility by adjusting how much foreign currency it buys. Central bank data showed on Friday it had started buying less foreign currency on Wednesday, the first day of the rouble’s slide. As a reminder, Russia recently liquidated the bulk of its US Treasurys holdings over the past two months as it sought to diversify away from the dollar.

For now, the fate of the U.S. bill Medvedev was referring to is not certain. Congress will not be back in Washington until September, and even then, congressional aides said they did not expect the measure would pass in its entirety.