World Economy

Russian hopes fade for quick sanctions deal with US

Russian hopes for speedy sanctions deal dashed

The escalating furore in Washington over President Donald Trump's links with Russia has struck a damaging blow to hopes in Moscow that a quick deal on sanctions is in the pipeline.

The Trump administration's dealings with Russian President Vladimir Putin and his officials has come under intense scrutiny since Monday's ousting of National Security Advisor Michael Flynn, following revelations that he had discussed sanctions with the Russian ambassador in Washington and subsequently lied about it to Vice President Mike Pence.

After a joint request on Wednesday by the top Republican and Democrat on the Senate Judiciary Commission for transcripts of the conversation and details surrounding Flynn's departure, the possibility of further details of the administration's connections with Russia being exposed – whether financial, political, business or personal – has become more probable.

While an independent investigation is increasingly likely but not yet inevitable, any inquiry that does take place will last months, said Alastair Newton, director of Alavan Business Advisory in a note to clients on Thursday, as he spelt out the implications of this for Russia.

"Despite Trump's seeming single-mindedness over Putin any hope of significant rapprochement with Russia is well and truly dead — as the Kremlin at least appears to be recognising even if Trump himself does not," asserted Newton.

Strong allegations from the U.S. intelligence services that Russia conspired to influence the outcome of the U.S. presidential election in favor of President Trump by hacking rival Hillary Clinton's emails have returned to the spotlight after accusations from French Presidential candidate Emmanuel Macron's campaign that he has suffered similar attacks.

Macron's team claims he has been the target of both fake news spread by state-controlled media outlets and numerous cyber attacks by Russian hackers in order to derail his campaign in favor of his Russia-friendly key rival, the far-right's Marine Le Pen. The charges have been denied by the Russian media involved and the Kremlin.

While a strategy of supporting populist candidates in the West who are significantly less wedded to the hardline and sanctions taken against Russia for its seizure of Crimea in 2014 has its compelling logic, the fallout from Flynn's departure and the ongoing exposure of broader dysfunction at the White House suggests that the impression of tight relations with controversial incumbents may prove more of a liability than an asset for Putin's government.

Indeed, despite acknowledging the major strategic opportunity of a Trump presidency, all of the decision makers in Moscow have been notably cautious of the new President ever since the election, Christopher Granville, managing director at TS Lombard told CNBC via email on Thursday.

"They will be concentrating hard to make the most of the opportunity. But concentration means not raising expectations too high and not over-reaching. Many might say that the prominence of the "Russia question" in U.S. domestic politics already amounts to over-reach by Moscow," Granville explained.

"From here, Russian diplomacy will be cautious, deliberative – looking for deals and give-and-take – while of course standing firmly on their red lines, such as Crimea," he added.

And it is important not to overestimate to what extent President Trump would ever have had the power to fundamentally change the nature of the relationship with Russia within a short period, as Timothy Ash, economist at BlueBay Asset Management reminded clients in a note on Thursday.

"Hawkish views towards Moscow have been long held in the GOP, and never really moderated that much after the fall of the Soviet Union," Ash posited before asking whether this is the fight – among all of the others he could potentially face given his desire to change many established elements of U.S. policy – he would want to pick.

"More likely the Trump administration will have to bow to the established Russia view in Washington, which will more likely mean accepting more hawkish (on Russia) members into the administration, to assure Congress and likely forestalling likely damaging investigations into the administrations' Russia links," continued Ash.

"The administration can chose to fight all this, but its broader policy reform agenda will surely suffer as a result if it so chooses. Trump will need to be clever in picking his fights, and this is unlikely to be one he should wish to get pulled into," he concluded.

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