How Rusal escaped the noose of US sanctions

LONDON/PARIS/ WASHINGTON: They were supposed to be the toughest sanctions the United States had ever imposed on a Russian oligarch. Seventeen days later, Washington watered them down.

On April 23, the US Treasury eased restrictions on billionaire Oleg Deripaska’s aluminium company Rusal.

Instead of barring Rusal from international markets, which is what the United States originally intended to do, the Treasury suggested it might lift the sanctions altogether.

Washington’s change of course says a lot about the leverage held by the supply chain of a widely-used commodity such as aluminium.

It also suggests the Trump administration is hard-pressed as it juggles international economic battles it has opened on various fronts, including with China and Iran.

Several European governments, including Germany and France, lobbied Washington to back down, according to more than a dozen US and EU officials and industry sources who spoke to Reuters.

Multinationals Rio Tinto and Boeing also appealed to the US Treasury, seeking a softening of the terms on Rusal.

All made the same argument, the sources said: a squeeze on the largest producer of aluminium outside China would hit businesses around the world, disrupting production of myriad goods from car and planes to cans and foil, and putting jobs at risk.

Unlike previous cases of sanctions on Russia, European countries did not have a chance to consult with Washington on punitive moves that would have ripple effects in the European economy, the sources said.

One reason for the lack of dialogue: the US State Department no longer has a Sanctions Policy Coordinator to liaise with other governments, according to three US sources familiar with the matter and one European source.

The former coordinator, Daniel Fried, retired last year and has not been replaced because of a hiring freeze ordered by the Trump administration at the department.

Rusal, Rio Tinto and Boeing declined to comment.

The US Treasury, whose Office of Foreign Assets Control (OFAC) imposed the measures, said it worked to mitigate the sanctions’ impact on allies and industries that faced “undesired collateral consequences”. It did not comment on lobbying efforts.

When asked if the lack of a sanctions coordinator had hindered international consultation, the State Department said it had held several discussions with European countries over the past year about sanctions and maintained a dialogue with them. It did not specify if it had discussed Russian sanctions.

The sanctions were the toughest the United States has imposed on a listed Russian company since Moscow’s 2014 annexation of Crimea.

The notice on April 6 gave buyers a deadline of 30 days to receive supplies from Rusal before dealings in dollars were prohibited.

Any individual or company that failed to comply would themselves face being shut out of the financial system, while the Treasury could seize any dollars paid to Rusal.

The effect was immediate. Prices for aluminium surged 15 per cent as Rusal stopped supplying customers. As well as producing aluminium, the company produces alumina, a raw material needed to make aluminium.

“They (the Treasury) destabilised the global aluminium industry. This is unprecedented and a massive over-reach,” said Anders Aslund, senior fellow at US think-tank Atlantic Council. — Reuters