Russia move to ban West imports will backfire: US

  • Reuters, Washington
  • Updated: Aug 08, 2014 11:55 IST

The White House made the case on Thursday that Western sanctions against Russia for destabilising Ukraine have had a significant impact on its economy and that Russian retaliation by banning many Western food imports will only boomerang.

Russian president Vladimir Putin ordered his government to adopt the ban in response to Western economic sanctions on Russia's defense, oil and financial sectors over Moscow's support for rebels waging an insurrection in eastern Ukraine.

"Retaliating against Western companies or countries will deepen Russia's international isolation, causing further damage to its own economy," Jason Furman, chairman of the White House Council of Economic Advisers, told reporters in a conference call.

Furman said the bans would push up Russia's already-high inflation rate, hurting consumers. Conversely, US sanctions on Russia have not affected oil prices or US economic growth, he said.

Read:Moscow bans Western food imports; Russian quits as Ukraine rebel chief

"Russia's actions in Ukraine and the sanctions we've already imposed have made a weak Russian economy even weaker," Furman said.

Boys play a game of war between Ukrainian army and pro-Russian separatists in eastern Ukrainian town of Kramatorsk. (Reuters Photo)

While Russia's exports to the United States and the European Union together constituted 13% of Russia's gross domestic product, Furman said US exports to Russia constitute only 1/10th of 1% of US GDP and only 8/10ths of 1% of European Union GDP.

The United States is prepared to levy additional sanctions on Russia if it does not change course in backing separatists in eastern Ukraine, a top US Treasury Department official said, adding to the pressure on the Russian economy.

"The sanctions that we have imposed and the market's understanding that there are more sanctions to come if Russia does not change course have exacerbated preexisting vulnerabilities in the Russian economy," treasury undersecretary David Cohen said on the call.

"Some analysts are now predicting an outright contraction in the Russian economy in the second half of this year," he said.

Imported dairy food products (top) and other food items are displayed for sale at a grocery store. (Reuters Photo)

Cohen also said Washington has warned Russia against a reported oil-for-goods swap with Iran, and that entities involved in any such deal would be exposed to US sanctions.

Read:US sanctions are straining Russian economy, says Obama

It is still unclear whether Russia and Iran have agreed on an oil-for-goods swap, Cohen said, noting that such a deal could affect ongoing talks on Iran's nuclear programme.

He declined specific comment on Exxon's oil drilling project in the Russia Arctic.

"We have engaged very closely with the US business community to explain what we're doing, to provide guidance, and to listen to their concerns and get their input as we design these sanctions programs," Cohen said.

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