April 24, 2018 / 6:50 PM / 4 months ago

Breakingviews - U.S. sanctions rethink is only partly reassuring

LONDON (Reuters Breakingviews) - The American rethink on Russian sanctions should be more reassuring than it is. The U.S. Treasury said on April 23 that it would give customers more time to comply with tough recent curbs on Rusal, and also offered the group the chance to disentangle itself from owner Oleg Deripaska. That’s good for commodities markets, but only up to a point.

Aluminium ingots are seen stored at the foundry shop of the Rusal Krasnoyarsk aluminium smelter in the Siberian city of Krasnoyarsk, Russia November 9, 2017. REUTERS/Ilya Naymushin

On the face of it, the intervention by Treasury Secretary Steven Mnuchin has two positive aspects. Firstly, it allows contracts with Rusal to continue to be settled until Oct. 23, instead of June 5, avoiding a scramble by counterparties to dump the aluminium group’s products. Second, it raises the possibility that sanctions on the group could be lifted altogether if Deripaska sells his stake. As a result, aluminium prices have fallen almost 10 percent on the London Metal Exchange and Rusal shares have soared over 40 percent.

Yet there are two problems. One is ongoing uncertainty. The latest U.S. stance gives some breathing space over one of most potent but scary parts of the sanctions – the risk that traders or counterparties could wind up in the same boat as Rusal if they continue dealing with it. But they will still be nervous about taking on fresh exposure to the aluminium group. And even if another Russian entity acquires the 48 percent stake controlled by Deripaska, counterparties may still fret that the new owner could wind up on a future sanctions list too.

The second problem is what the sanctions saga says about America’s role in fanning the uncertainty. Sanctions watchers originally saw the April 6 actions as a smart way for Washington to hurt the upper echelons of the Russian state, while hitting a commodity that was less existential than, say, oil. Monday’s U-turn raises the possibility that the U.S. government accidentally went too far. Given that President Donald Trump has to decide next month whether to return Iran to the kind of sanctions that have hammered Rusal, international investors have to weigh the risk that America is not only tough but erratic.

Breakingviews

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