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Mercados

FACTBOX-How might West respond to Russia over Navalny poisoning?

Sept 3 (Reuters) - Chancellor Angela Merkel has said Germany will consult its NATO allies about how to respond to findings by a German military laboratory that Kremlin critic Alexei Navalny was poisoned with a Soviet-style nerve agent.

Russia is already under international sanctions, including over its annexation of the Crimea peninsula from Ukraine in 2014 and its backing for rebels fighting pro-government troops in eastern Ukraine.

Moscow denies involvement in the incident in which Navalny fell ill after boarding a flight in Siberia and Russian authorities and doctors have said they could find no evidence Navalny was poisoned.

Below are some measures that might be considered against Russia, based on proposals mooted in previous cases when the West considered sanctions against Russia. Some proposals were rejected out of concern for the economic harm they could also inflict on Western countries and companies doing business with Russia.

TARGETED TRAVEL BANS/ASSET FREEZES

Western countries could consider targeted sanctions on Russian individuals deemed to have been involved in Navalny’s case.

“I believe in targeted sanctions against some individuals, the question is who will be named responsible,” said Yevgeny Minchenko, a political analyst familiar with Kremlin thinking who said he did not expect harsh new sanctions.

The European Union said on Thursday sanctions would be possible only when it was established who was responsible for Navalny being poisoned.

The EU can also impose sanctions on people or entities deemed responsible for the development or use of chemical weapons, regardless of their nationality or location.

The EU and the United States already have travel bans and asset freezes in place against Russians accused of responsibility for grave human rights abuses, including the 2009 death in prison of Sergei Magnitsky, a lawyer arrested after accusing Russian officials of tax fraud.

DIPLOMATIC EXPULSIONS

Britain and other countries expelled Russian diplomats after Russian double agent Sergei Skripal and his daughter were poisoned in the English city of Salisbury in 2018 with Novichok, the same nerve agent that was used against Navalny, according to toxicology tests conducted at the German military laboratory.

Britain blamed Russia for the Salisbury attack. Russia denied the accusation and responded with tit-for-tat expulsions.

Some political figures favour tougher action than diplomatic expulsions. Wolfgang Ischinger, chairman of the Munich Security Conference and a former ambassador to Washington, said expulsions may be too soft a response in Navalny’s case.

ECONOMIC SANCTIONS

The EU already has sanctions in place on Russia’s energy, financial and arms sectors, and a ban on doing business with Crimea, over Moscow’s seizure of the peninsula.

Toughening such sanctions would require unanimity among the EU’s 27 member states. While some, such as Poland, are open critics of Moscow, others, such as Hungary, might be less willing to back tougher economic sanctions against Russia.

NORD STREAM 2

Merkel faces calls, including from some members of her own party, to take punitive steps over the Nord Stream 2 pipeline that is being built to carry natural gas directly from Russia to Germany. It is due to start operating early next year.

Punitive measures over the pipeline could include imposing penalties on parties providing underwriting services, insurance or reinsurance, and pipe-laying activities.

Some EU countries say the pipeline will undermine the traditional gas transit state, Ukraine, and increase EU reliance on Russia for energy. The United States, keen to increase shipments of liquefied natural gas to Europe, opposes the pipeline and has targeted some firms involved with sanctions.

But Merkel has been unwavering in her commitment to the project and has made clear she in no hurry to act over the Navalny case, saying any response depends on Russia’s behaviour.

TURKSTREAM

Another option could be to take steps over TurkStream, a pipeline project that will carry Russian natural gas to southern Europe through Turkey.

Russia is building TurkStream in two pipelines, the first of which will supply Turkey and the second of which is to extend from Bulgaria to Serbia and Hungary.

Any action considered over TurkStream would be intended in effect to suspend its further expansion to Europe.

The Russian foreign ministry has said that sanctions threats against pipelines amount to “political pressure” and “unfair competition”.

SOVEREIGN DEBT

Another possible response that might be considered is limiting foreign investors’ ability to hold Russia’s sovereign debt.

Non-residents hold 29.8% of OFZ rouble bonds, or slightly above 3 trillion roubles ($39.8 billion) as of Aug 1.

OFZ bonds are an important source of cash for state spending.

DISCONNECTING RUSSIA FROM SWIFT

Another possible step that could be considered is disconnecting the Russian financial system from global SWIFT interbank payments, which would make international financial transactions nearly impossible.

Andrey Kostin, chief executive of Russia’s second largest bank, VTB, has said such a move would be comparable to a declaration of war.

$1 = 75.3548 roubles Reporting by Moscow bureau and Gabriela Baczynska in Brussels, Editing by Andrew Osborn and Timothy Heritage

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