Russia calls new U.S. sanctions illegal, unfriendly as ruble falls

Russia condemned a new round ofU.S. sanctions as illegal on Thursday after news of the measuressent the ruble tumbling to two-year lows and sparked a widerasset sell-off over fears that Moscow was locked in a spiral ofnever-ending curbs by the West.

Moscow has been trying with mixed success to improvebattered U.S.-Russia ties since Donald Trump won the White Housein 2016, and Russia's political elite was quick to chalk up asummit last month between Trump and Vladimir Putin as a victory.

But initial triumphalism swiftly turned sour as anger overwhat some U.S. lawmakers saw as an over deferential performanceby Trump and his failure to confront Putin over Moscow's allegedmeddling in U.S. politics galvanized a new sanctions push.

Having bet heavily on improving ties with Washington viaTrump, Moscow now finds that Trump is under mounting pressurefrom U.S. lawmakers to show he is tough on Russia ahead ofmid-term elections.

In the latest broadside, the U.S. State Department said onWednesday it would impose fresh sanctions by the month's endafter determining that Moscow had used a nerve agent against aformer Russian double agent, Sergei Skripal, and his daughter,Yulia, in Britain, although Moscow denies having any involvement.

In an early reaction, the Kremlin said the sanctions wereillegal and unfriendly, and the U.S. move was at odds with the "constructive atmosphere" of Trump's and Putin's encounter inHelsinki.

Currency market 'panic'

The new sanctions come in two tranches.

The first, whichtargets U.S. exports of sensitive national-security related goods such asspecialized oil and gas technology and someelectronics and sensors,comes with deep exemptions and many of the items itcovers have already been banned by previous restrictions.

However, the second tranche, activated after 90 days ifMoscow fails to provide "reliable assurances" it will no longeruse chemical weapons and allow on-site inspections by the UnitedNations or other international observer groups, is more serious.

NBC, citing U.S. officials, said the second tranche couldinclude downgrading diplomatic relations, suspending the stateairline Aeroflot's ability to fly to the United States, andcutting off nearly all exports and imports.

Russia will have to brace for more to come over the next several years, prepare for the worst and push back where it can.- Dmitri Trenin, director of Carnegie Moscow Center

The State Department's announcement fuelled alreadyworsening investor sentiment about the possible impact of more sanctions on Russian assets and the ruble at one point slid byover oneper cent against the dollar, hitting a two-year low, before recouping some of its losses.

The U.S. move also triggered a sell-off in Russiangovernment bonds and the dollar-denominated RTS index fell to its lowest since April 11.

"There is local panic on the currency market," BCS Brokeragesaid in a note. "At times, the number of those who want to ditchthe ruble is becoming so high,so there is not enoughliquidity."

'Illegal' sanctions

The Kremlin said the new sanctions were "illegal and do notcorrespond to international law."

"Such decisions taken by the American side are absolutelyunfriendly and can hardly be somehow associated with the constructive not simple, but constructive atmosphere thatthere was at the last meeting of the two presidents," Kremlin spokespersonDmitry Peskov said.

Washington had become an unpredictable player on theinternational stage, Peskov added, saying "anything could be expected" from it and that it was important that Russia'sfinancial system, which he described as stable, was prepared.

In a sign the Kremlin was not eager to escalate an alreadydifficult situation, however, Peskov said it was too early to talk about Russian countermeasures.

He criticized the U.S. decision to link the sanctions to theBritish nerve agent case, an incident the Kremlin has long cast as a Western plot to damage its reputation and provide a pretextfor more sanctions.

Skripal, a former colonel in Russia's GRU militaryintelligence service, and his 33-year-old daughter were found slumped unconscious on a bench in the southern English city ofSalisbury in March after a liquid form of the Novichok type ofnerve agent was applied to his home's front door.

European countries and the United States expelled 100Russian diplomats after the attack, in the strongest action byTrump against Russia since he came to office.

Konstantin Kosachyov, head of the upper house ofparliament's international affairs committee, was cited by theInterfax news agency as saying it appeared Washington was nowbehaving like "a police state."

'Weapon of choice'

Dmitri Trenin, director of the Carnegie Moscow Center and aformer colonel in the Russian army, said the State Department'smove looked like the latest salvo in what he called a hybridwar.

"Sanctions are the U.S. weapon of choice," Trenin wrote onTwitter.

"They are not an instrument, but the policy itself. Russiawill have to brace for more to come over the next several years, prepare for the worst and push back where it can."

At variance with Moscow over Ukraine and Syria, Westernsanctions have already drastically reduced Western involvementin Russian energy and commodities projects, including large-scale financing and exploration of hard-to-recover and deep-water resources.

Proposed U.S. legislation prepared by several senators callson Trump to widen the sanctions further to include virtually allRussian energy projects and effectively bar Western companiesfrom any involvement in the country.

Introduced by Republican and Democratic senators last weekin draft form, Sen.Lindsey Graham, one of the measure's leadsponsors, has called it "the sanctions bill from hell."