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Abu Dhabi, UAETuesday 21 August 2018

Russia warns US: sanctions on banks would mean economic war

Prime minister reacts to proposed US legislation as rouble hit by new sanctions 

Russian Prime Minister Dmitry Medvedev warned the United States against ramping up sanctions on August 11, 2018. Sputnik via AP
Russian Prime Minister Dmitry Medvedev warned the United States against ramping up sanctions on August 11, 2018. Sputnik via AP

Russia warned the United States on Friday it would regard any US move to curb the activities of its banks as a declaration of economic war which it would retaliate against, stepping up a war of words with Washington over spiralling sanctions.

The warning from Prime Minister Dmitry Medvedev reflects Russian fears over the impact of new restrictions on its economy and assets, including the rouble which has lost nearly six per cent of its value this week on sanctions jitters.

Economists expect the economy to grow by 1.8 per cent this year. But if new sanctions proposed by Congress and the State Department are implemented in full, something that remains uncertain, some economists fear growth would be cut almost to zero in future.

In a sign of how seriously Russia is taking the threat, President Vladimir Putin discussed what the Kremlin called "possible new unfriendly steps by Washington" with his Security Council on Friday.

Moscow's strategy of trying to improve battered US-Russia ties by attempting to build bridges with President Donald Trump is backfiring after US legislators launched a new sanctions drive last week because they fear Mr Trump is too soft on Russia.

That in turn has piled pressure on the Republican president to show he is tough on Russia ahead of mid-term elections.

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On Wednesday, the State Department announced a new round of sanctions after the US determined that Russia had used a chemical weapon earlier this year in the attempted assassination of a former Russian spy in Britain. Separate legislation introduced last week 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.

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

"I would not like to comment on talks about future sanctions, but I can say one thing: if some ban on banks' operations or on their use of one or another currency follows, it would be possible to clearly call it a declaration of economic war," he said.

"And it would be necessary, it would be needed to react to this war economically, politically, or, if needed, by other means. And our American friends need to understand this," he said, speaking on a trip to the Russian Far East.

In practice however, there is little Russia could do to hit back at the US without damaging its own economy or depriving its consumers of sought after goods, 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.

The fate of the US bill seeking action against Russian banks is not certain. The full US 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.

While it was difficult to assess so far in advance, they said it was more likely that only some of its provisions would be included as amendments in another piece of legislation, such as a spending bill Congress must pass before September 30 to prevent a government shutdown.

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