February 13, 2020 at 7:45 am ET
Countering Russian meddling in American politics is all the rage on Capitol Hill, and it should be. After all, the digital age we live in all but assures that, without proper deterrents, a persistent enemy can wreak havoc on a nation with a free press and open social media channels. That’s the thinking behind the Defending American Security from Kremlin Aggression Act, a piece of legislation recently passed out of the Senate Foreign Relations Committee.
But while DASKA aims to combat Russian meddling through broad, sweeping sanctions on Russia, the real damage will be felt by American businesses. That’s the chief reason why a number of voices, including the U.S. State Department, the U.S. Chamber of Commerce and diverse economic sectors from energy to aerospace, are calling for revisions of DASKA and a serious rethinking of its use of broadly defined sanctions.
As written, DASKA would force American businesses to withdraw from projects involving the Russian government or Russian-backed firms. That might sound good to some, however, just consider the reality and the unintended consequences.
For example, U.S.-owned companies are heavily involved in global energy projects that employ thousands. ExxonMobil alone employs over 1,000 people in Russia on the Sakhalin-1 project that’s delivered more than 700 million barrels of oil to international markets. If sanctions are enforced as proposed by DASKA, American energy companies could be forced to withdraw from as many as 150 energy projects worldwide.
As Karen Kerrigan of the Small Business and Entrepreneurship Council explains, big energy companies wouldn’t be the only ones to feel the pain of sanctions aimed at Russia. Many smaller American companies are involved in global projects, with the vast majority of U.S. oil and gas extraction businesses having fewer than 20 employees. Whether it’s oil extraction itself or the supply of machinery, equipment and materials, DASKA will fire at the Kremlin and hit Main Street instead.
Meanwhile, Russia and its firms could actually benefit from American withdrawals from energy projects. With U.S.-owned businesses forced to exit, likely at deep discounts, Russian firms will be more than glad to capture their former competitors’ market share.
The Russians are also likely to take advantage of a U.S. energy withdrawal by working closer with the Organization of the Petroleum Exporting Countries to boost oil prices, hurting U.S. consumers. The absence of U.S. companies could also encourage Russia to pursue closer energy cooperation with government-run Chinese firms.
Energy isn’t the only sector in the crosshairs of DASKA, of course. In aerospace, Boeing has invested billions in Russia, sourcing almost all of the titanium for its aircraft production from the Russians.
Sanctions on Russia would hit Boeing hard, especially in South Carolina, which just built a 256,000-square-foot decorative paint facility for final assembly of the 787 Dreamliner. Today, as many as 20,000 American small businesses supply Boeing.
In agribusiness, American companies such as Cargill have long ties to Russia dating back decades. Cargill opened a Moscow office in 1991 and now employs about 2,500 people in Russia.
Likewise, Proctor & Gamble has two Russian plants, employing 1,500 people, that produce a wide range of grooming tools and accessories. The total Proctor & Gamble supply chain is much larger at about 10,000 people.
In the end, sanctions that are intended to stop Russian meddling could instead hurt tens of thousands of U.S. workers employed by large and small businesses alike. One estimate is that as many as 3,000 U.S. businesses doing business in Russia would be forced by DASKA to exit their business dealings or withdraw from Russia altogether, a serious detriment for the U.S. economy.
The truth is that DASKA’s broad scope of sanctions are a poor approach to dealing with Russia. As the U.S.-Russia Business Council explains, this set of sanctions would have almost no impact on Russia, because of the country’s strong fiscal position and low debt to gross domestic product ratio — the world’s fifth lowest.
Russia has a budget surplus and doesn’t rely on external financing. What’s more, the State Department has warned lawmakers that Russia could even turn sanctions into a weapon by deliberately gaming the dollar amounts that trigger sanctions, cleverly forcing U.S. companies out of projects to its own benefit.
The better solution? Fix DASKA by focusing on specific Russian wrongdoers whose misdeeds have hurt America. Alter the bill’s language to allow American businesses to keep working cooperatively with good-faith Russian partners. And above all else, ensure that our approach to Russia doesn’t stall our booming energy sector and infringe on our economy by damaging American businesses.
The U.S. must counter Russian meddling, but the current version of DASKA isn’t the solution.
Guy F. Caruso is a former head of the U.S. Energy Information Administration.
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