Will International Sanctions Stop Russia in Ukraine?

In Brief

Will International Sanctions Stop Russia in Ukraine?

The United States and its allies have imposed harsh economic penalties on Russia over its war in Ukraine. Here’s what they cover and what they could achieve.

What sanctions has the United States imposed so far?

The United States has implemented a series of sanctions in coordination with allies to isolate Russia from the global financial system and weaken its military edge. These sanctions add to the bevy of those Washington hit Russia with following its annexation of Crimea in 2014. 

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The most significant to date are the unprecedented penalties on Russia’s central bank. The United States has effectively frozen the bank’s U.S. assets—preventing it from using its foreign reserves to prop up the value of the Russian ruble—and blacklisted a major Russian sovereign wealth fund, further restricting Moscow’s access to money from abroad. The United States and its allies are also moving to boot several Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), a Belgium-based interbank messaging service. This would severely hamper those banks’ ability to move money around the world by forcing them to use slower forms of communication, such as email and fax.

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Additionally, the U.S. Treasury Department has slapped sanctions on two huge Russian banks and their subsidiaries, and it expanded restrictions on purchasing Russian debt. Top Russian officials, including President Vladimir Putin and Foreign Minister Sergei Lavrov, have been personally targeted. Putin joins a small list of U.S.-sanctioned heads of state that also includes North Korean leader Kim Jong-un and Syrian President Bashar al-Assad. Washington is launching a “transatlantic task force” to lock up the wealth of sanctioned Russian individuals and companies, including private jets, yachts, and luxury homes.

Meanwhile, the U.S. Commerce Department has restricted exports of high-tech products such as computers and semiconductors to Russia with the aim of curtailing its military capabilities. The export restrictions extend to goods produced in other countries using American technology.

What are other countries doing?

The United States has implemented these sanctions in tandem with the European Union (EU) and other allies. The EU has placed its own sanctions on Russian banks, including the central bank, and on Russian individuals, including Putin and Lavrov. It has also restricted exports to Russia in the energy, transportation, and technology sectors. Germany took the additional step of halting certification of the Nord Stream 2 gas pipeline

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Meanwhile, the United Kingdom, a haven for wealthy Russians, has applied its own but similar penalties. Switzerland, a global financial hub which is also outside the EU, announced on Monday that it will join the EU sanctions regime. 

Other U.S. allies, including Australia and Japan, have also announced sanctions. Significantly, Taiwan, the world’s leading producer of semiconductors, said it will restrict exports of chips to Russia.

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How much are sanctions expected to hurt?

Studies have shown that U.S. sanctions following the annexation of Crimea slowed Russia’s economic growth, but not by much. However, the sanctions hitting Moscow now have the potential to produce far more severe consequences.

Russia has spent years bracing itself for such penalties, including by hoarding more than $600 billion worth of reserves in its central bank. A big chunk of those reserves are in foreign bank accounts, so the sanctions on the central bank will greatly diminish Russia’s war chest. The ruble is expected to struggle as the central bank will be unable to use foreign currency to bid up its value, which has already fallen by nearly 30 percent as of Monday. The loss of foreign reserves coupled with the removal of Russian banks from SWIFT will also make it difficult for Russian businesses and citizens to pay for imports they rely on. The likely result is widespread economic pain in Russia, including rapid inflation and a further decline of living standards. There are already signs that the sanctions are starting to bite: Russia’s central bank has doubled its benchmark interest rate to 20 percent in an effort to strengthen the ruble, and the country’s credit rating has been downgraded to junk status by S&P Global, a major rating agency.

The sanctions could also make it difficult for foreigners to buy Russian exports. This has significant implications for Europe, which is heavily dependent on Russian oil and gas. Russia is also a major exporter of other commodities, including wheat and metals such as aluminum and nickel. Gas is flowing for now, but the loss of Russian supply would drive up energy prices worldwide and could worsen inflation in the United States and other countries. The Joe Biden administration is tailoring U.S. sanctions to allow energy purchases to continue. 

What options does Moscow have?

Not many. The coordinated U.S. and European sanctions mean that Russia has lost access to the world’s most popular reserve currencies. Russia could turn to China for help—the two countries have worked together for years to trade without dollars—but the renminbi is not widely used outside of China. Moscow could try to use cryptocurrencies to evade the sanctions, but it would be difficult to move large amounts of money without attracting the attention of authorities, experts say. Also, Washington could target large crypto exchanges to prevent sanctions evasion.

Some observers warn that the central bank penalties could back Putin into a corner, potentially leading to dangerous escalation. Other analysts argue that sanctions alone have historically failed to force rogue states, such as Iran and North Korea, to change course. “Sanctions are an important tool but no panacea,” writes CFR President Richard Haass. “They can and will increase the cost to Russia of Putin’s war, and they may well contribute to public disaffection in Russia, but for now what will matter most is what happens on the ground in Ukraine.”

Will Merrow created the graphics for this article.

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