Russia: Rise in diplomatic tensions - Rabobank

Analysts at Rabobank suggest that there is some focus on rising diplomatic tension between the UK - supported by its Western allies - and Russia as President Trump announced that 60 Russian diplomats will be expelled from the US in response to the nerve-agent poisoning of a former Russian spy and his daughter on the UK soil.

Key Quotes

“The White House also ordered Russia to close its consulate in Seattle. With more than 20 countries (including 14 from the EU) joining the US to offer their solidarity with the UK, Prime Minister May told UK lawmakers that “this is the largest collective expulsion of Russian intelligence officers in history” and added that “if the Kremlin’s goal is to divide and intimidate the Western alliance, then their efforts have spectacularly backfired.”

“Perhaps a full breakdown in diplomatic relationship will be averted with US Ambassador to Russia Huntsman saying that President Trump still wants to meet President Putin. That said, the West and Russia seem to be moving towards a new cold war.”

“It remains to be seen whether diplomatic measures will be followed by a new round of economic and financial sanctions against Russia. On previous occasions we made the point that the sanctions imposed on Russia by the West for the incorporation of Crimea and for the destabilisation of eastern Ukraine proved to be a very strong incentive for Russia to fully substitute imported food from the EU.”

“Apart from being one of the largest oil and gas producers, Russia is now also self-sufficient in terms of food production. It also has substantial gold and FX reserves. A free trading ruble is another major achievement of the last few years, which to a large degree can be attributed to the Western sanctions. On the top of that, Russia has strengthened its cooperation with China over the past few years.”

“Essentially, it could prove difficult for the West to penalise Russia given its limited source of external vulnerabilities and stronger ties with China.”