How Western economic sanctions could target Russia
Tensions between Moscow and Western powers have raised fears that new economic sanctions will be imposed on Russia if it attacks neighboring Ukraine.
The European Union has threatened ‘massive’ sanctions and US Senate Democrats have unveiled a bill to impose sanctions on Russian government officials, military leaders and banking institutions if Moscow engages in hostilities against Russia. ‘Ukraine.
Russia, which has massed tens of thousands of troops near Ukraine’s borders but denies plans to invade the former Soviet republic, has been under sanctions since its 2014 annexation of Crimea from its neighbor.
More punitive measures were added after a former Russian spy was poisoned in Britain in 2018 and following an investigation into alleged Russian interference in the 2016 US presidential election won by Donald Trump. Russia has denied any role in the poisoning of ex-spy Yuri Skripal and his daughter, and denies trying to interfere in foreign elections.
Here are some ways financial sanctions could target Russia:
Curb the chips
The White House has told the U.S. chip industry to prepare for further restrictions on exports to Russia if Moscow attacks Ukraine, sources said. This includes potentially blocking the country’s access to global electronic supplies.
Similar measures were deployed during the Cold War, when the United States and other Western nations maintained harsh tech sanctions against the Soviet Union, keeping it technologically backward and stunting growth.
Business and financial
The United States and the EU already have sanctions against Russia’s energy, financial and defense sectors.
The White House is floating the idea of curbing Russia’s biggest banks and has previously mooted measures targeting Moscow’s ability to convert rubles into dollars and other currencies. Washington could also target the state-backed Russian Direct Investment Fund.
According to former US State Department economist Mark Stone, sanctions applied to individual companies often cause industry-wide difficulties, as they make investors fear that restrictions will be widened or that they will be unable to differentiate.
Sanctioning all transactions with Russian banks and freezing assets would be “more impactful and targeted” than a shutdown of the SWIFT global messaging system, said Brian O’Toole, a fellow at the Atlantic Council think tank.
Targeting Russia’s access to SWIFT, which is widely used in international financial transactions, would only become truly useful after broad financial sanctions by the United States, Britain and the EU, O’ said. Toole.
Sanctioning individuals through asset freezes and travel bans is a commonly used tool and can sometimes have wide resonance. Britain imposed sanctions in April 2021 on 14 Russians under a law giving the government the power to sanction those it believes are credibly involved in the most serious corruption abroad.
The bill unveiled by Senate Democrats provides sweeping sanctions against senior Russian officials, including President Vladimir Putin.
Kremlin spokesman Dmitry Peskov said the idea of imposing sanctions on the Russian president would mean severing relations between Moscow and Washington.
One of the toughest measures would be to disconnect the Russian financial system from SWIFT.
SWIFT, used by more than 11,000 financial institutions in more than 200 countries, is a Belgium-based cooperative governed by a 25-member board of directors, including Eddie Astanin, chairman of Russia’s Central Counterparty Clearing Center (NCC).
There is precedent: In March 2012, SWIFT disconnected Iranian banks as international sanctions tightened against Tehran over its nuclear program – a move that saw the country lose half of its oil export revenue and 30 % of its foreign trade, according to the Carnegie Moscow Center think tank.
Iran’s economy is smaller and not as internationally connected as the Russian economy, whose interconnectedness with the West has functioned as a shield. The United States and Germany would be the biggest losers, as their banks are the most frequent SWIFT users along with Russian banks, according to Maria Shagina of the Carnegie Moscow Center.
Calls to cut off Russia’s SWIFT access were raised in 2014 when Moscow annexed Crimea, prompting Moscow to develop an alternative messaging system, SPFS.
The number of messages sent through SPFS reached around 2 million, or a fifth of Russian internal traffic, in 2020, according to the central bank, which aims to increase this figure to 30% in 2023. However, the SPFS system, which has a size limits on posts and only operational on weekdays, struggled to pick up foreign members, Shagina wrote in a 2021 post.
O’Toole of the Atlantic Council said cutting Russia off from SWIFT would cause immediate disruption, but the impact would lessen over time.
“Some payments would be delayed and there could be an increase in costs to make new ones, but generally speaking there is unlikely to be a massive collapse in Russian trade as long as this trade remains legal/not sanctioned,” O’Toole said.
North Flow 2
Chancellor Olaf Scholz has indicated that Germany would be ready to discuss suspending the Nord Stream 2 gas pipeline project – intended to deliver gas under the Baltic Sea from Russia to Germany – if Moscow attacks Ukraine. The pipeline has been constructed but has not yet received regulatory approval. It faced opposition from the United States and raised concerns among some European politicians about Europe’s increasing dependence on Russia for energy supplies. Russia said Europe and Russia would benefit from Nord Stream 2 and that Germany should not “politicize” the project.
Hard hit in the bond market
Access to Russian bonds has become increasingly restricted and restrictions could be tightened further, with a ban on secondary market participation being offered as an option.
In April 2021, US President Joe Biden banned US investors from buying new Russian ruble bonds – OFZs as they are known – due to accusations of election interference.
Sanctions imposed in 2015 made future Russian dollar debt ineligible for many investors and indices such as JPMorgan’s EMBI Global. These measures have reduced Russia’s external debt by 33% since the beginning of 2014, from $733 billion to $489 billion in the third quarter of 2021. Lower debt improves a country’s balance sheet on the surface, but the deprived of sources of financing that could contribute to the economy. growth and development.