April 16 (Bloomberg) — President Joe Biden said he wants a “stable, predictable relationship” with Russia after imposing sanctions in response to allegations that Moscow was behind a hack on SolarWinds Corp. and interfered with last year’s U.S. election.
“The United States is not looking to kick off a cycle of escalation,” Biden said Thursday at the White House. But he added: “If Russia continues to interfere with our democracy, I’m prepared to take further actions to respond.”
Biden said he was following through with a campaign vow to hold Russia accountable for its actions and that he could have gone further but chose to be “proportionate.” He said he’s hopeful Russian President Vladimir Putin will meet with him in Europe this summer and work to improve relations.
The U.S. restricted buying new sovereign debt and sanctioned 32 entities and individuals, including government and intelligence officials, and six Russian companies that provide support to the Russian government’s hacking operations. The U.S. is also expelling 10 Russian diplomats working in Washington, including some intelligence officers.
The Biden administration is barring U.S. financial institutions from participating in the primary market for new debt issued by the Russian central bank, Finance Ministry and sovereign wealth fund. Those limits would take effect starting June 14.
Russian bonds fell and the ruble dropped the most since December on news of the impending penalties, although markets recovered some of those losses after the sanctions were announced.
The sanctions reflect an attempt by the U.S. to balance the desire to punish the Kremlin for past misdeeds but also to limit the further worsening of the relationship, especially as tensions grow over a Russian military buildup near Ukraine.
Several of the sanctioned entities have links to Yevgeny Prigozhin, a Russian businessman dubbed “Putin’s Chef” for his Kremlin catering contracts and close ties to the president. He controls the Wagner group of mercenaries that fought in Syria and Libya, and deployed to hotspots in Africa and Latin America in support of Kremlin policy. Prigozhin has been under U.S. sanctions since late 2016.
Notably, the new measures didn’t target any new tycoons, something that many in Moscow had feared.
Restrictions, like those announced Thursday, blocking U.S. investors from buying ruble-denominated Russian government debt have long been seen as the “nuclear option” in financial markets, where the bonds, known as OFZs, have been a popular investment. Foreigners now hold about a fifth of that debt, worth roughly $37 billion.
But restricting the limits to new debt sales, and not trading on secondary markets, will blunt the impact.
An executive order signed by Biden gives additional authorities to act against Russia that the U.S. isn’t exercising immediately and would prefer not to have to use, an administration official said.
Biden said Thursday that now is the time to “de-escalate” tensions with Russia. “My bottom line is this: Where there’s an interest to the United States to work with Russia, we should and we will,” Biden said. “Where Russia seeks to violate the interests of the United States, we will respond.”
Some U.S. lawmakers said Biden should have gone further.
“While these sanctions are a necessary step, I am concerned they will ultimately fail to establish a credible deterrent,” Representative Michael McCaul, the top Republican on the House Foreign Affairs Committee, said in a statement.
Even as Russia vowed to retaliate, the Kremlin signaled it was ready to limit the damage and remained open to the White House’s offer of a presidential summit.
“The sanctions were moderate and I hope the reaction will be,” said Andrey Kortunov, head of the Kremlin-founded Russian International Affairs Council, before Biden spoke. “Russia’s response shouldn’t hamper the summit. People understood that sanctions were inevitable.”
The U.S. has been threatening to impose additional restrictions on Russia for months to punish the Kremlin for a litany of transgressions in recent years.
A U.S. intelligence community assessment has concluded with a high degree of confidence that Putin and the Russian government authorized and directed an effort to influence the 2020 election. Some of the new measures are aimed at outlets controlled by Russian intelligence services and blamed for sowing disinformation during the 2020 campaign, according to one of the people. Others targeted include individuals and entities that operate outside Russia at the behest of Moscow.
The sanctions follow a review ordered by Biden on his first full day in office into four key areas concerning Russia: interference in the 2020 election, reports of Russian bounties on U.S. soldiers in Afghanistan, the SolarWinds attack and the poisoning of Russian opposition leader Alexey Navalny.
Russia has repeatedly rejected accusations that it meddles in elections, poisons its critics or offered to pay bounties for the killing of American troops.
Those hit by this round of sanctions include individuals and entities blamed by the U.S. for enabling the Internet Research Agency, a Kremlin-linked troll farm that used a coordinated operation on social media in an effort to help Donald Trump’s presidential campaign in 2016.
Actions in response to the malicious SolarWinds cyber activity target about half a dozen entities linked to Russian security services. The U.S. also named the Russian Foreign Intelligence Service, or SVR, as the perpetrator of the campaign.
The attack by hackers who compromised widely used software by Texas-based SolarWinds breached more than 100 U.S. companies and nine government agencies before it was discovered by a cybersecurity firm. White House Press Secretary Jen Psaki said Thursday that the hack allowed Russia to spy on, or disrupt, 16,000 computer systems worldwide.