The low turnout for Sunday’s parliamentary election in Russia—less than 48 percent of eligible voters participated, the lowest level since 1991—reflected, among other things, growing disillusionment with the economic situation in the country. According to a recent poll, 72 percent of Russians think their country is in an economic crisis. Russia’s GDP and standard of living have declined two years in a row, and the Russian government is burning through its budget reserve fund to plug deficits at a rapid rate. Russian pensioners, truck drivers, and teachers among others are complaining that they are struggling to keep up.
Their growing complaints, combined with the low price of oil, the economic sanctions imposed by the West for Putin’s invasion of Ukraine, and overall government mismanagement of the economy in failing to diversify and modernize have led the Russian government to order the privatization of some of its prized assets. After all, Russian President Vladimir Putin continues to spend billions on his military operations in Ukraine and Syria—money he increasingly does not have.
The privatization targets include nearly a fifth of oil behemoth Rosneft, which is on the U.S. Treasury Department’s list of Russian entities sanctioned over Ukraine. The Kremlin hopes to reap some $11 billion from that privatization. The Russian government postponed the sale of nearly $5 billion in shares in Bashneft—Russia’s fifth-largest oil firm which was seized by the state in 2014 from oligarch Vladimir Yevtushenkov in a questionable money-laundering investigation—because of indecision on whether Rosneft can participate in the sale of Bashneft shares.
Proceeds from Russian privatization would free up funds for the Putin regime to continue its military aggression in Ukraine and Syria and to perpetuate the Kremlin’s massive corruption. The U.S. government isn’t powerless to respond; Congress should forbid financial institutions from participating in these offerings as long as Russia continues to violate Ukraine’s sovereignty and territorial integrity and bombs hospitals and civilians in Syria. Since Rosneft is already sanctioned, buying its shares would violate existing sanctions anyway.
Earlier this year, Western governments successfully discouraged banks in their countries from participating in a $3 billion Russian bond offering, driving away buyers and increasing costs for Moscow. Last year, the Obama Administration urged American companies to skip the St. Petersburg Economic Forum.
But distracted by other crises, the Administration failed to deter attendance at this year’s St. Petersburg forum. As a result, participants included European Commission President Jean-Claude Junker, Italian Prime Minister Matteo Renzi, UN Secretary General Ban Ki-moon, along with dozens of corporate executives eager to get back to business as usual with Russia.
Growing interest in Russia among the private sector in Europe and the United States is consistent with corporations’ push to end Ukraine-related sanctions, which, they argue, are hurting them. They fear that sanctions open the door for the Chinese to scoop up business opportunities in Russia. This explains efforts by the U.S.-Russia Business Council to lobby against proposed legislation in the U.S. Congress that would codify Ukraine-related sanctions against Russia.
Western governments must demonstrate that there will be no end to sanctions as long as Russia tramples on Ukraine’s sovereignty and territorial integrity and supports the Assad regime through its bombing campaign. It would be unconscionable for Western firms to bailout Putin. But we cannot rely on the good consciences of business leaders, given their push to end Ukraine-related sanctions. That is why Congress should make it illegal to participate in Russian privatization, which would fund, even indirectly, Putin’s egregious actions.
It would be good, of course, for European parliaments to follow suit, though U.S. action on this front should not be predicated on parallel European steps. Moreover, the extra-territorial reach of American sanctions legislation banning participation in Russian privatization would apply not only to American firms but to European and Chinese ones, too. They, after all, would need to think twice before risking their relations with, and business opportunities in, the United States. Participating in Russian privatization in violation of American sanctions would deny them more remunerative opportunities in the United States and put at risk their existing investments here.
It is not enough for the U.S. government to discourage participation in Russian privatization; it must be outlawed. Such a step will destroy the Putin regime’s hopes of raising much-needed funds from selling off state assets and will send a signal that the West stands strong in the face of ongoing Russian aggression. This is no time to finance Putin’s reckless behavior, or return to business as usual with Russia.