Tensions Rise Between US and Russia Following Biden Sanctions

Since the 2016 US presidential election, US/Russia relations have been fragile, but new details released today have intensified matters. Recent reports indicate that the Kremlin has threatened to blockade the Black Sea for six months, preventing entry to US official ships and foreign military, with headlines equating the events to the outbreak of World War 3. The blockade would also mean the US cannot access Ukrainian ports, which prompted them to accuse Russia of undermining Ukraine.

US State Department spokesperson Ned Price stated that the blockade was particularly disconcerting, given reports that increased numbers of Russian troops have been flocking to the Ukrainian borders, providing further indication of attempts to destabilise the country. Mr Price also stated that the build-up of Russian forces around the Ukraine border had surpassed levels seen in 2014 when the Russia/Ukraine conflicts first began.

Several reports have indicated that more than 15 Russian ships have assembled in the Black Sea, with Ukrainian Officers predicting a possible air assault to seize Ukrainian water supply to deliver to Crimea.

Russia’s latest threats follow sanctions introduced by US President Joe Biden concerning interference with the 2020 US presidential election, which includes diplomatic expulsions, procedures regarding companies involved in cyber-espionage and US banks prohibited from purchasing new Russian sovereign debt. Russia responded by mocking the UK, who were vocally supportive of US actions, accusing the UK of merely ‘playing along’ with the US.

Amid the rising tensions, the US ambassador to Russia is said to be flying back to the US, having previously refused to leave the country.

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US Ambassador to fly back to America for consultations

US Ambassador to Russia, John Sullivan, was advised by Russian foreign policy official, Yuri Ushakov, to fly back to the US, though Mr Sullivan initially refused. Despite the initial reluctance, the US embassy has confirmed that Mr Sullivan will return to Washington DC for consultations as tensions between the two countries continue to rise.

Mr Sullivan released a statement highlighting the importance of speaking directly with the Biden administration regarding the recent events between the US and Russia before returning to Moscow in the coming weeks.

Last Friday, Russia announced that they would ban entry for eight US Officials in retaliation to Joe Biden’s sanctions and threatens to intensify measures if the US impose further action. However, Kremlin press secretary Dmitry Peskov was adamant that the US sanctions would not threaten the Russian economy.

US President Biden stated during a conference call with Russian President Vladimir Putin that there were options for the US to impose more severe sanctions but decided against this, for now, offering to hold a summit with Putin during the summer. Whilst Russia is open to a summit with Mr Biden, they have stated that they will observe the evolving situation before deciding.

Foreign policy expert Fyodor Lukyanov forecast that US/Russian relations will continue to decline despite President Biden’s meeting offer with Russian President, with each party believing the other to be lacking morals and political rights.

Any further sanctions imposed by the US on Russia must be carefully considered as any more severe measures could result in reckless actions from the Kremlin, potentially harming Ukraine further.

Mr Biden is due to host a climate summit meeting with President Putin and President of China, Xi Jinping, this week, both leaders of countries with whom the US holds a cold war-style relationship. Putin has agreed to speak at the summit this week, suggesting an interest in preserving US/Russia relations.

As events between Russia and Ukraine continue to escalate, the EU has also been urged to impose sanctions on Russia.

Donald Tusk urges Angela Merkel to abandon Moscow project

Ukrainian Foreign Minister Dmytro Kuleba has insisted the European Union (EU) impose sanctions on Russia as Russian troops continue to build up across Ukraine. Former President of the European Council, Donald Tusk, was quick to respond by stating that Chancellor of Germany, Angela Merkel, should cancel Nord Stream 2 to stop Russian aggression against Ukraine.

Nord Stream 2 is an underwater pipeline to transport natural gas between Russia and Germany and has been viewed as a controversial project. Mr Tusk’s comments were followed by a statement from Conservative MP Daniel Kawczynski, who has called for “Britain to join the USA in imposing sanctions on companies involved in the construction of the Nord Stream 2 pipeline.”

The Nord Stream 2 pipeline has been a provocative project since the outset, with many believing that gas carried from Russia to Germany will increase the EU’s dependency on Russian gas. Additionally, the project will also hinder critical revenue for Ukraine, as gas would bypass the country, and they would no longer receive valuable transit fees.

Germany has consistently ignored opposition concerning Nord Stream 2 and looks to continue with the project despite penalty threats from countries such as the US, with Angela Merkel defending the plans. Ms Merkel stated that whilst Germany has many conflicts with Russia, making the relationship difficult, she believes that the countries should continue to talk with one another.

Despite difficulties across the bloc, the euro (EUR) has edged higher against its key currency competitors following strong German data.

US dollars, euros and pound Sterling

Euro edges higher against the US dollar

Whilst there is disagreement amongst the EU regarding its relationship with Russia, the euro (EUR) has edged higher against the US dollar (USD) during London’s trading session. The euro to US dollar (EUR/USD) exchange rate has broken above the USD 1.20 resistance level as the US dollar (USD) faces pressure from a basket of currencies.

Data today revealed that producer prices in Germany rose 0.9% in March compared to the previous month, which was higher than the 0.6% that was forecast. On a yearly basis, Germany’s producer prices rose 3.7% compared to the forecast 3.3%. The better-than-expected prices are helping to boost the euro (EUR) currency, given that Germany is the largest economy within the EU.

Falling payroll numbers in the UK between February and March have caused the British pound (GBP) to dip against the US dollar (USD). New data indicates that payrolls fell 56,000 between this period, causing the British pound to US dollar (GBP/USD) exchange rate to trade 0.23% lower at USD 1.3951.

Despite the disappointing figures, economists remain hopeful that the UK economy will see a sharp recovery during Q2, with daily coronavirus infections falling, further vaccinations being deployed and the opening of the economy.

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