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How Russian retaliation could hurt America

Russia could hit back at the United States by halting sales of rare metals and aerospace products to American compani...

Posted: Apr 16, 2018 6:06 PM
Updated: Apr 16, 2018 6:06 PM

Russia could hit back at the United States by halting sales of rare metals and aerospace products to American companies.

A large group of Russian lawmakers has drafted a law that threatens to restrict cooperation in the aviation, aerospace and nuclear industries, as a response to "unfriendly actions" of the United States. Officials said Monday that parliament would debate the bill on May 15.

Further hearings are likely to follow, but if passed, the law will present Russian President Vladimir Putin with a list of possible targets.

Kremlin spokesman Dmitry Peskov said the president's administration was still studying the proposed measures. "It requires time, but of course you can safely assume that any measures won't harm Russian interests and the President repeatedly expressed this," he said.

Jason Bush, an analyst at Eurasia Group, said the parliament was almost certain to pass such a law but it would be "implemented much more selectively than the full extent of the text allows."

Russia is not among America's 20 biggest trading partners, but retaliatory sanctions could still hurt. Here's how.

Titanium for aircraft

Russian lawmakers are talking about cutting off titanium supplies for America's aircraft manufacturers.

State-owned VSMPO-Avisama is the world's largest producer of titanium and titanium products, and Boeing is one of its biggest customers.

Boeing needs titanium for most of its aircraft and has a contract with VSMPO-Avisama that runs until 2022, according to a statement from the Russian company in 2015, when the agreement was struck. The companies also operate a joint venture, Ural Boeing Manufacturing.

Analysts at Citi estimate that Boeing gets about 35% of its titanium from Russia.

Related: US sanctions are killing this oligarch's business

"This is yet another political drama unfolding that can weigh on global industrial businesses," the Citi analysts wrote in a research note. "Boeing - inevitably - gets caught up in these sorts of headlines given its prominent position and global supply chain," they noted, adding that the company was likely to have mitigation plans in place.

Boeing said it was aware of the draft Russian bill and was "monitoring the situation."

Rocket engines

Atlas V rockets, which carry military, intelligence and commercial satellites into space, rely on engines made by Russia's NPO Energomash.

The Atlas rockets are manufactured by United Launch Alliance, a joint venture between Boeing and Lockheed Martin, using the Russian engines. The rockets are used by NASA, the US Air Force, the Department of Defense and commercial customers.

If Russia stops supplying the RD-180 thrust engines to the United States - as the draft law threatens to - it could spell trouble for the aerospace industry.

Related: Sanctions have sent aluminum soaring

The US Air Force has been aware of the risk of relying on Russia for key parts. American alternatives are in development, but are not ready for commercial use.

Elon Musk's SpaceX, which has already won some Air Force contracts, is not yet able to meet all the requirements needed to replace the Atlas V rockets.

Food and other imports

According to the draft law, Russia could also add more American products to a list of banned imports drawn up in 2014 in retaliation for Western sanctions over the crisis in Ukraine.

"Most attractive from Russia's point of view are measures which would restrict imports in sectors where Russia is keen to promote import substitution," said Bush, the Eurasia Group analyst.

Related: These are America's top trading partners

According to the draft legislation, the new sanctions could include additional food products, as well as alcohol and tobacco, software and pharmaceutical products.

Uranium exports

The proposal also mentions the possibility of suspending cooperation with the United States in nuclear energy.

Uranium exports could be a target. According to the Energy Information Administration, the United States imports most of the uranium it uses as fuel.

Russia is America's fourth biggest supplier after Canada, Kazakhstan and Australia, providing about 14% of the uranium.

The United States generates roughly 20% of its total electrical output from nuclear energy, according to the EIA.

-- Mary Ilyushina contributed reporting.

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