Russia has had a good crisis. The economy only contracted by 3.4% in the third quarter of this year, after crumpling by -8% in the second quarter. And that is after the Kremlin has only spent about 3% of GDP on stimulus and support – one of the lowest levels in the world. Next year the economy is supposed to bounce back with 2.8% of growth. Maybe.

A huge black cloud is hanging over Russia’s outlook for 2021: will the new Biden administration aggressively slap new sanctions on Russia? If it does, then that could make a huge difference to Russia’s performance in 2021. The Trump administration has been exceptionally soft on Russia, but there are at least three bills in Congress carrying some very damaging ideas indeed.

Copious column inches have already been expended on the debate. There are two camps: the “repair the damage” camp believes that sanctions will be maintained but not greatly expanded as Biden focuses on rebuilding damaged relations with Europe. Countries like Germany have large business interests in Russia and are seeking a pragmatic relationship with the Kremlin that is mindful of the investments already made.

The more aggressive “containment” camp wants to see much more decisive action on Russia. Biden has a reputation for upholding human rights and was Barack Obama’s point man on Ukraine. He is expected to hold Russia to account with more targeted sanctions.

However, some banks are taking the view that even if Biden is more aggressive, the simple return to normality after four years of craziness will in itself lead to a boom in business. Just the end of the Trumpian trade wars, for example, will do a lot to remove uncertainties.

For its part, the Kremlin is not taking any chances. One of the reasons it has spent so little on stimuli is to keep its reserves dry in case there are new painful sanctions.

As bne IntelliNews reported in October, that month the Kremlin launched what appeared to be a charm offensive aimed at deescalating tensions with the US even before the US elections were held. Amongst many comments, Putin suggested that he was willing to find a peace deal with Ukraine, in a first for him.

The stock market participants seem to belong to the repaid-the-damage camp and have been buying up stocks in anticipation of a return to normalcy. A rerating was well underway in November as the leading dollar-denominated Russia Trading System (RTS) index started to recover its losses from earlier in the year (see story).

“Russian assets struggled to perform from August until [the] US elections, but have since come back as markets begin to think that a Biden presidency will not see an immediate roll-out of additional US sanctions on Russia,” Tim Ash, senior sovereign strategist at BlueBay Asset Management, said in a note in November.

There are several sanctions bills in the queue. The Countering America’s Adversaries Through Sanctions Act (CAATSA) has already been passed but there are three more draft bills waiting for votes: Defending Elections from Threats by Establishing Redlines Act (DETER); Defending American Security from Kremlin Aggression Act (DAASKA); and most recently, Making America Safe and Secure Act (SECURE).

“The latter is particularly strict on Russia, including provision[s] for sanctions on Russian sovereign debt, extending beyond the current sanction[s] on new primary issuance of Russian dollar debt,” says Ash. “The fact that these bills did not make it to a vote on the floor of Congress perhaps reflected more the timing of the US election, but also that the GOP leadership wanted to close off scope for further Russia embarrassments for Trump before the election.”

These bills are still “live”, says Ash, and the GOP leadership will now be under no particular pressure to go soft on Russia after Trump leaves.

The situation is made more confused because since 2014 Russian sanctions have increasingly become a tool for domestic politics that have nothing to do with Russia’s actions. Ash speculates that the GOP might use the Russian sanctions bills to attack Biden and try to make him look soft on Russia and wound him politically.

As bne IntelliNews has reported, there are many issues on which the US and Russia can co-operate, ranging from negotiating a new START nuclear missile treaty to bringing peace to Libya.

Relations may improve, as the Kremlin seems to have recently adopted new rules regarding a much milder approach to its foreign policy, where it focuses on its own interests but has reduced its meddling in countries' domestic policies dramatically, as leading political analyst Dmitry Trenin recently pointed out in a penetrating option piece “Moscow’s New Rules.”