Texas-based Exxon Mobil and other far flung U.S. energy companies are deeply invested in multibillion-dollar oil exploration and production deals with Russia.
And despite U.S.-Russian tensions, the Pentagon is moving ahead to complete a politically sensitive, $1.1 billion deal to provide 61 Russian-built helicopters to beleaguered Afghan allies as U.S. troops withdraw from a 13-year war.
U.S. officials are talking tough, but with so much invested in the U.S.-Russian relationship since the end of the Cold War, questions persist over whether threatened U.S. penalties can make a difference.
Treasury Secretary Jack Lew bluntly warned Russian Finance Minister Anton Siluanov on Thursday that the United States is ”prepared to impose additional significant sanctions on Russia if it continues to escalate the situation” in Ukraine.
Lew’s comments signaled continued resolve by the Obama administration as Putin threatens to take over parts of eastern Ukraine after annexing the Crimean peninsula last month.
“We stand ready to impose further sanctions,” President Obama has warned. ”Further provocations will achieve nothing except to further isolate Russia and diminish its place in the world.”
Rep. Ted Poe of Humble, a Republican member of the House Foreign Affairs Committee, insists the United States ”remain firm,” adding: ”Putin has not flinched at what we have done so far and shows no signs of retreating from Cold War II. Now is not the time to back down.”
Western allies ”need to adopt progressively stronger economic sanctions” if Russia refuses to halt threatening actions,” adds Rep. Gene Green, a Houston Democrat who has served in Congress since 1993. ”While the U.S. has been able to maintain a working relationship with Russia during past controversies, this violation has ended U.S. collaboration with Russia on several fronts, including space exploration.”
NASA has suspended official contacts, visits, emails and teleconferences between U.S. and Russian officials ”given Russia’s ongoing violation of Ukraine’s sovereignty and territorial integrity.”
Yet the crown jewel of U.S.-Russian cooperation in space — the International Space Station — has been ”excepted” from NASA’s administrative cold shoulder, says Michael F. O’Brien, associate administrator for international and interagency relations.
A Russian Soyuz rocket carried NASA astronaut Steve Swanson and two Russian cosmonauts to the space station in late March and in mid-May, NASA astronaut Rick Mastracchio, a Japanese astronaut and a Russian cosmonaut will be returning to earth aboard a Russian Soyuz capsule.
Russia’s delivery of U.S. astronauts to the space station began with retirement of the space shuttle fleet in 2011 and is projected to continue at least until late 2017 when commercial spacecraft companies are expected to qualify for manned missions.
”We’ve seen before that exploration of space has been the one area in times of geopolitical conflict that we could rise above,” says Sen. Bill Nelson, D-Fla., an ardent supporter of manned space flight who flew into space aboard Space Shuttle Columbia as a payload specialist in 1986. ”I believe we need to continue that tradition.”
The $70 billion satellite launch operation that relies on Russian RD-180 rocket motors to propel U.S.-built Atlas rockets and U.S. satellites into orbit is also expected to survive a Pentagon review.
”With or without tensions, we need a way to get our satellites into orbit,” says Bob Mitchell, president of the Bay Area Houston Economic Partnership that includes 50 aerospace contractors in the Houston area. ”Sanctions are a bottom-line decision for companies.”
The U.S. energy industry is equally interdependent with Russia. Exxon Mobil and BP are collaborating with the Russian state oil company to develop Caspian Sea projects.
Exxon Mobil also has a pioneering $3.2 billion deal with Rosneft to explore Russia’s portion of the Arctic Ocean in return for providing Rosneft energy development prospects in Exxon Mobil leased deepwater zones in the Gulf of Mexico and on land in Texas.
The firms’ corporate leadership has been circumspect about the threat of sanctions. But the U.S. Chamber of Commerce has been more blunt.
”All too often, unilateral sanctions have been imposed for ill-defined purposes or with little consideration of their real impact,” the prominent business organization cautioned. ”Rather than altering the behavior of foreign governments, these sanctions have often damaged U.S. economic interests at home and overseas.”
Strains over the Ukraine are contributing as well to a review of a rare arms deal between the Pentagon and the Russian state arms exporter Rosoboronexport. Lawmakers including Poe and Sen. John Cornyn, R-Texas, have been pressing the Treasury Department as well as Secretary of State John Kerry to freeze final payments for the 24 helicopters that remain to be delivered. So far, the Pentagon has not broken the contract or suspended payments.
The economic stakes are so large that inflicting economic damage on Russia threatens to backfire across the economies of the 28-nation European Union and even the United States.
Western economies export $250 billion a year to Russia. Companies based in the United States and Europe have $500 billion invested there. And Russia has $400 billion invested in the United States and Europe.
So far, the United States has relied on targeted inconvenience, barring visits by 20 senior Russian officials from Putin’s inner circle and wealthy oligarchs, as well as freezing dealings with Bank Rossiya, located in Putin’s hometown of St. Petersburg.
”What we’re seeing now are largely symbolic sanctions,” says Gary Hufbauer, an expert who has evaluated the impact and effectiveness of 237 sanctions’ regimes imposed by the United States since 1914. ”Broad penalties have an effect in only one-third of cases – and that means you get partial achievement of your goals but you don’t get a slam dunk.”
The Russian economy is too large and diverse and Putin is too autocratic to be susceptible to outside economic pressure, adds Hufbauer, author of ”Economic Sanctions Reconsidered.”
Robert Pape, author of ”Why Economic Sanctions Do Not Work,” has found that ”even in the weakest and most fractured states, external pressure is more likely to enhance the nationalist legitimacy of rulers than to undermine it.”
Experts and lawmakers alike concede the United States has limited leverage.
Houston-area lawmakers agree more must be done.
”Sanctions are unlikely to work unless key global partners will impose and enforce them — which rarely occurs,” says Rep. Kevin Brady, R-The Woodlands, chairman of the Joint House-Senate Economic Committee. America can respond in the meantime by abandoning military cutbacks, reinstating the missile defense shield in Eastern Europe and exporting liquid natural gas to Europe to break Russia’s stranglehold over natural gas supplies to eastern and Western Europe, Brady said.
The United States ”cannot allow Russia to dismember its neighbors,” added Rep. Michael McCaul, R-Austin, chairman of the House Committee on Homeland Security. The Obama administration ”has the ability to take wide ranging action if necessary. Sanctions are not the only answer to Russian aggression against Ukraine.”
Beyond potentially escalating economic penalties, the Obama administration has already signaled Russia by staging joint military exercises with 450 American and Romanian troops in Romania, located adjacent to Ukraine. The Pentagon also has dispatched the guided missile destroyer USS Donald Cook to join the USS Truxtun in the international waters of the Black Sea, notably the home port of Russian’s southern fleet.
And the Pentagon expanded joint military exercises in Poland by adding 18 U.S. F16 fighters and 300 personnel to previously scheduled drills in a nation that has agreed to station elements of the U.S. defensive missile shield in 2018.
Initial sanctions targeting Putin’s closest allies are designed to demonstrate ”there will be consequences” for Russian intervention while leaving room for the Kremlin ”to reverse what it’s done and not make further incursions into Ukraine,” says Lew, the treasury secretary.
”There should be no illusion that we’ve done everything we can do,” said Lew, who has authority to expand economic sanctions at any time. ”We’ve put in place a blueprint that makes clear that there’s quite a bit more we could do.