U.S. sales to Russia have only risen since sanctions imposed

Russian flags around a statue of Lenin. (Roy Gutman/MCT)
Russian flags around a statue of Lenin. (Roy Gutman/MCT) MCT

In the months since the United States imposed sanctions on Russian businesses and close associates of President Vladimir Putin’s, an odd thing has happened: U.S. exports to Russia have risen.

U.S. Census Bureau foreign trade data show that exports rose 17 percent from March through May _ the most recent months for which the data is available _ compared with the previous three months, before sanctions were imposed. The value of exports has risen in each consecutive month this year, an unusual trend in a trade relationship that historically fluctuates on a monthly basis.

Russian markets account for less than 1 percent of U.S. exports, but what the U.S. sells to Russia is largely high-tech and expensive goods, including technology and equipment for the energy sector, which faces the threat of targeted sanctions.

Robert Kahn, a senior fellow in international economics at the Council on Foreign Relations, said the rise in exports was evidence that Russian companies were stockpiling goods with the expectation that future sanctions would prevent U.S. companies from selling to their country.

The first round of sanctions, placed by President Barack Obama on March 6, targeted primarily individuals close to Putin and those linked to the invasion and annexation of Crimea. The most recent round, imposed earlier this month because of alleged Russian assistance to separatist groups in eastern Ukraine, was broader, including Gazprombank, the financial wing of Russia’s state-owned and largest natural gas company, along with energy companies Novatek and Rosneft.

The Obama administration said Monday that new sanctions were likely to be announced this week.

Toughening sanctions could hurt American exports of machinery for the production of oil and gas _ crucial to Russia’s economic growth. Kahn predicted that the sanctions against Gazprombank and the other energy companies will cut into the stockpiling effect and might send Russia’s economy into a recession. “It affects quite powerfully their own ability to develop their (oil and gas) infrastructure for export,” Kahn said.

Other trade specialists said the figures didn’t necessarily show a consistent trend. With the Russian market for U.S. products relatively small _ just $5.1 billion total in the first five months of the year _ a slight increase in sales of a few big-ticket items, such as cars and airplanes, can drive trade-figure percentage increases higher.

“If you take Boeing, they are tens of millions of dollars” per aircraft, said Anders Aslund, a senior fellow at the Peterson Institute for International Economics, a Washington research center. “One order . . . makes a lot of difference.”

Boeing delivered eight jets to Russian airlines this year through June. The total price of civilian aircraft and parts sent to Russia this year through May was $1.39 billion. The types of planes purchased by Russian airlines, from the 737 and 777 families, cost $76 million to $320 million each last year, according to Boeing.

Exports of cars and trucks, which totaled more than $1.2 billion last year, were up 95 percent in March, April and May compared with the previous three months. While in recent years automotive sales have risen in the spring, the increase is usually smaller. This year’s growth during the March through May period was 90 percent higher than last year’s.

General machinery accounted for another $1 billion in exports in the first five months of the year, with sales fluctuating on a monthly basis. Sales of mining and oil and gas field machinery made up the largest portion, amounting to $227 million.

To increase production in order to fill export demands _ in May, Putin signed a 30-year pipeline agreement with China that reportedly could be worth $400 billion in new gas sales _ Russia has looked to fracking and drilling within the Arctic, both processes that require more advanced equipment such as that used at American drilling sites.

John Webb, the director of Russian and Caspian energy for IHS, a Colorado-based industry consulting and data company, said investment from U.S. energy companies that included Exxon Mobil and Halliburton had played a key role in the development of Russian offshore and shale oil fields. Russia has a limited number of plants that manufacture the heavy-duty rigs, he said.

“The potential rig shortage is a key factor,” Webb said of Russia’s ability to meet demand for oil and natural gas.

In the wake of the downing of a Malaysia Airlines passenger jet over eastern Ukraine earlier this month, Congress has called for sanctions on specific sectors of Russia’s economy in an effort to squeeze the economy more.

Last week, Sens. Dianne Feinstein, D-Calif., Robert Menendez, D-N.J., and Carl Levin, D-Mich. _ the chairs, respectively, of the Intelligence, Foreign Affairs and Armed Services committees _ asked Obama to impose sanctions on Russia’s energy and financial sectors.

“We understand and strongly support your efforts to coordinate the imposition of sanctions with our key European allies in order to ensure their maximum intended effect, and we encourage further cooperation in pursuit of this goal,” read the letter, which also called for the administration to consider labeling the breakaway Donetsk People’s Republic a terrorist organization.

Expanded sanctions are likely to face opposition from many business groups. The U.S. Chamber of Commerce, for one, argues that imposing sanctions that are tougher than those that European nations are willing to impose would hurt U.S. businesses without doing much to undercut the Russian economy.

“The fact that the United Sates accounts for less than 5 percent of Russia’s international commerce will limit the sanctions’ impact on Russian policy,” Myron Brilliant, the head of international affairs at the Chamber of Commerce, said in a statement.

The European Union is Russia’s largest trading partner, supplying 41 percent of the country’s imports and receiving 52 percent of its exports, a total that amounted to almost $450 billion last year.

Leslie Beyer, the president of the Houston-based Petroleum Equipment Suppliers Association, said there was concern among American companies that further sanctions would decrease access to important Russian markets.

“The impact of unilateral sanctions would be felt acutely within the service, supply and manufacturing sector of the U.S. energy industry,” Beyer said in an email. “Obstruction to ongoing operations would hinder domestic job growth and simply open the door to foreign competitors.”

While exports to Russia have been rising since new sanctions were implemented, imports have steadily fallen, lowering the U.S. trade deficit with Russia by 40 percent.

“We are watching developments closely to determine what impact, if any, there will be to our ongoing business and partnerships in the region,” Boeing said in an emailed statement. “We won’t speculate on the potential impact of sanctions or any other potential government actions.”