On Wednesday night, Russia invaded Ukraine in what amounts to a predetermined attack against a peaceful neighbor. On Thursday, the U.S. and the United Kingdom imposed a new wave of sanctions on Moscow and the allies of Russian President Vladimir Putin.
The sanctions are unprecedented in their severity and comprehensiveness. However, they didn’t go as far as some would have expected.
It’s Raining U.S. Sanctions
The U.S. Treasury sanctioned Russia’s two largest banks, the VTB Bank Public Joint Stock Company (VTB Bank) and Public Joint Stock Company Sberbank of Russia (Sberbank). According to the U.S. Treasury, Russian financial institutions conduct approximately $46 billion worth of foreign exchange transactions on a daily basis. About 80% of these transactions take place in U.S. dollars, meaning that the sanctions will seriously curtail the operations of Russia’s two largest banks.
In simple words, VTB Bank was cut off from the financial system altogether. However, it was only the VTB Bank that was hit the hardest; U.S. sanctions against Sberbank didn’t go as far as they could have.
In addition, the U.S. applied full blocking sanctions on three other major Russian financial institutions, as well as several Putin allies and Russian oligarchs and their families in an attempt to mount domestic pressure against the Russian president. Moreover, the U.S. is imposing export controls on technology products in an attempt to hurt the Russian defense, aerospace, and technology industries.
“Treasury is taking serious and unprecedented action to deliver swift and severe consequences to the Kremlin and significantly impair their ability to use the Russian economy and financial system to further their malign activity,” said U.S. Secretary of the Treasury Janet L. Yellen said in a press release.
“Our actions, taken in coordination with partners and allies, will degrade Russia’s ability to project power and threaten the peace and stability of Europe. We are united in our efforts to hold Russia accountable for its further invasion of Ukraine while mitigating impacts to Americans and our partners. If necessary, we are prepared to impose further costs on Russia in response to its egregious actions.”
The U.S. also imposed sanctions on 24 Belarussian companies and individuals for their support of the Russian invasion.
The British government followed with its own sanctions. Russian bank assets in the U.K. were frozen, while Russian state-owned and strategic private companies are banned from raising money on the U.K. financial markets. In total, the British government imposed sanctions on more than 100 companies and individuals worth a total of about 100 billion pounds ($135 billion). The Russian Aeroflot airliner was also banned from the U.K.
Ukrainian President Volodymyr Zelensky said on Thursday morning that another package of tough sanctions against Russia is coming from the E.U. He demanded the disconnection of Russia from the SWIFT financial system and the introduction of a no-fly zone over Ukraine. The feasibility of the latter demand, however, is pretty slim as Ukraine doesn’t have the air power necessary to impose it and the U.S. and NATO have explicitly stated that they won’t get involved in direct military confrontation with Russian forces in Ukraine.
Putin and his inner circle might seem defiant of Western sanctions—and they have a good reason since Russia has been living under sanctions for years now—but the Russian business community is less bold. During a meeting with Putin, Aleksandr N. Shokhin, the president of the Russian Union of Industrialists and Entrepreneurs, pleaded for Russia to remain engaged in global commerce as the Russian economy wouldn’t be able to withstand sustained restrictions.
“Everything should be done to demonstrate as much as possible that Russia remains part of the global economy and will not provoke, including through some kind of response measures, global negative phenomena on world markets,” Shokhin said.
Are They Enough?
Sanctions on both sides of the Atlantic fell short of public expectations. In the U.K., for example, although British Prime Minister Boris Johnson stated that Russian oligarchs will have nowhere to hide, only five of them were sanctioned by the British government. At the same time that Johnson was delivering his speech in the House of Commons, Andrey Guryev, a Russian oligarch who wasn’t sanctioned and owns the largest mansion in London after the royal residence at Buckingham Palace, was attending a meeting of solidarity with Putin in the Kremlin.
The European Union is Russia’s largest trading partner, clocking an impressive 37% of its global trade in 2020. In addition, one-third of European energy demands are met by Russia.
According to the Ukrainian military, Russia seems to have committed only about half of its forces in the fight thus far. The U.S. and its allies, thus, might be holding back some sanctions in reserve as a negotiating tool, even if negotiations haven’t paid off hitherto.
Kicking Russia out of the SWIFT financial system and sanctions on Putin and his family are still on the table.