The Cable

Exclusive: U.S. Quietly Imposes New Russia Sanctions

(This article has been updated.)

While the Obama administration has touted U.S. efforts to isolate Russia economically and diplomatically, it has quietly found another way to slap Moscow for its annexation of Crimea.

Nearly a month ago, with no public notice, a small office in the Commerce Department abruptly stopped approving applications from U.S. firms that want to sell Russia potentially dangerous products.

The Commerce Department's Bureau of Industry and Security (BIS) suspended a raft of pending deals with Russia on March 1, just a day after Moscow sent troops streaming into Ukraine. The office didn't disclose the move until this week, when it posted an oblique notice on its website. The suspension has not been previously reported.

"Since March 1, 2014, BIS has placed a hold on the issuance of licenses that would authorize the export or re-export of items to Russia," the notice says. "BIS will continue this practice until further notice."

In 2013, BIS approved 1,832 export contracts to Russia for so-called dual use products like lasers and explosives, according to the bureau's annual report. The deals were worth roughly $1.5 billion, $800 million of which was for devices cryptically described as "designed to initiate an energetic charge."

The U.S. has also stopped authorizing exports of "defense articles and defense services to Russia" until further notice, according to a State Department official. The Directorate of Defense Trade Controls at the State Department has the power to approve or reject arms sales to Russia under a different licensing regime.

It's unclear why the administration didn't announce the suspension, but it could be because it's unclear how effective it will be since the U.S. is not revoking existing deals with the Russian military or Russian companies, just refusing to approve new ones. In addition, Moscow could potentially procure products on the list from companies based in other countries. The Commerce Department declined to explain the move.

Still, whether or not the suspension hurts the effectiveness of the Russian military, the ban on new contracts could definitely hurt U.S. exporters. The BIS doesn't name the specific companies that have pending deals with Russia.

"This will have an adverse impact on those U.S. companies that need a license to ship their goods to Russia, such as in the oil and gas and chemical processing industries," Doug Jacobson, a trade lawyer with the firm Jacobson Burton, said in an email. He first wrote about the BIS move Tuesday on his blog.

President Barack Obama has so far held off on the most damaging sanctions that could make it illegal for Americans to do business with whole Russian sectors like banking or energy, in part, out of economic concerns. Obama issued a new threat to expand Western sanctions against Russia during a speech in Brussels Wednesday.

"If Russia continues on its current course, however, the isolation will deepen, sanctions will increase and there will be more consequences for the Russian economy," Obama said at a press conference with European Council President Herman Van Rompuy.

Obama acknowledged last week, however, that targeting Russian industries could also be "disruptive to the global economy." Instead, the U.S. has opted to target Russian politicians, businessmen and a bank close to President Vladimir Putin.

Most commercial products exported to Russia don't require approval from the U.S. government. But certain products that could be used for either civilian or military purposes, like chemicals, software, shotguns, and horses, require an "OK" from the Bureau of Industry and Security to be sold to anyone in Russia. Yes, horses transported by sea fall into that second category. And yes, the U.S. sold Russia $2 million worth of horses in 2013. It's unclear whether horses on airplanes are considered as dangerous.


National Security

Harry Reid Drops IMF Reform from Ukraine Bill

In the face of staunch Republican opposition in the House of Representatives, Senate Majority Leader Harry Reid dropped a provision to reform the International Monetary Fund as part of an urgent rescue package to Ukraine's cash-strapped government.

Dropping the contentious IMF language clears the way for swift passage of legislation giving Kiev $1 billion in loan guarantees and hundreds of millions of dollars in assistance for election monitoring, civil society and security. Beyond the money itself, lawmakers believe the aid influx would provide a morale boost of sorts for Ukraine's beleaguered new leaders in the wake of Russia's conquest and annexation of Crimea.

Reid's decision to strip the IMF language out of the aid package comes just a day after the White House renewed its push for the reforms. Speaking to reporters Tuesday, the Senate leader said the bill would simply have not made it through Congress with the IMF provisions intact.

"As much as I think a majority of the Senate would liked to have gotten that done with IMF in it, I think it was headed to nowhere in the House," Reid said.

The provisions, a longtime goal of the Obama administration, would have sharply increased the lending capacity of the IMF. The U.S. is currently the only major industrialized nation that hasn't approved a 2010 package of reforms that would expand the power of developing countries within the IMF and shift money from its emergency to general account so it can provide more cash to struggling economies.

The White House had for weeks insisted that helping Ukraine and reforming the IMF were part and parcel of each other. "It's only through the IMF, a reformed IMF, that Ukraine is going to get the help it needs to stand on its own two feet," Secretary of State John Kerry said earlier this month.

Many House Republicans, though, opposed the changes because of fears they would undermine Washington's influence within the IMF. Other GOP lawmakers opposed the administration's plan to pay for the reforms by taking money out of Pentagon programs aimed at missile and aircraft procurement.

Until now, the Senate and House have been at loggerheads over the reforms. On Monday, the Senate bill including the IMF language passed a procedural vote by an overwhelming 78-17. On Tuesday, however, the House of Representatives passed its own Ukraine aid bill that did not include IMF reform language.

Speaking with reporters, Reid said he wanted to include IMF reform into the bill, but was stripping it from the legislation at the request of the Obama administration. "As John Kerry said yesterday, he wants both of them. But the main thing is to get the aid now. So I'm following John Kerry's lead," Reid said.

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