Explainer: A look at toughest US sanctions facing Russia
Washington – With the White House calling Russian deployments in eastern Ukraine an invasion, it’s expected to follow up with tough sanctions. President Joe Biden has made clear the United States intends to deploy sweeping financial penalties, not American troops, to hit Russia over President Vladimir Putin’s moves against Ukraine.
The Biden administration says its toughest sanctions package, already worked out in consultation with European allies, would be enough to hit Putin and Russia’s elites, cripple Russia’s ability to do business internationally, and likely bring on a recession there.
Here’s a look at some of the tougher possible penalties that U.S. leaders have been holding in abeyance – while watching for new Russian steps against Ukraine, including any possible Russian moves against additional Ukraine territory. The U.S. has yet to fully disclose which of the options it will use.
Nord Stream 2
Germany announced Tuesday that it would suspend its certification of the newly built but never operated Russia-to-Germany Nord Stream 2 pipeline. A multibillion-dollar project of Russia’s Gazprom energy company and European companies, the pipeline would carry Russia’s natural gas to the lucrative markets of Europe. It’s been a top target of the Biden administration and Republican and Democratic lawmakers alike, who say the project was a strategic mistake from the start, increasing Putin’s political power over Europe by prolonging Europe’s dependence on Russia’s natural gas.
Reluctant to split with ally Germany, Biden has warded off repeated attempts in Congress to impose financial sanctions on any company or person that does business that involves Nord Stream 2, effectively making it financially impossible for the pipeline to operate. It’s unclear if the U.S. might still impose its own sanctions on Nord Stream 2, to amplify the actions that Germany just took.
Biden made clear in recent weeks that Nord Stream had no chance if Russia invaded Ukraine. ’Then there will be no longer a Nord Stream 2. We will bring an end to it,” Biden said.
Ukraine-Russia: Germany suspends Nord Stream 2 gas pipeline
Sanctions on individuals and individual businesses and entities
Overall, the U.S. and its allies aim to impose sanctions that compel Putin to change his ways, while minimizing the harshest impacts on ordinary Russians and any collateral economic damage on the U.S. and European allies.
Sanctions are imposed on individuals listed on a Specially Designated Nationals and Blocked Persons List through the Treasury Department’s Office of Foreign Assets Control.
Also known as SDNs, the list includes individuals and companies owned or controlled by, or acting on behalf of a targeted country. Traditionally, their assets will be blocked and the U.S. is almost completely prohibited from dealing with SDNs. Individuals, groups, companies and even aircraft can be given this designation.
Additionally, sectoral sanctions are an option to damage the economy. Sectoral sanctions apply to specific Russian firms – such as energy, finance, technology and defense – to be included on the Sectoral Sanctions Identifications List. Sectoral sanctions will limit some trade but will permit some transactions.
Specifically, new sanctions would likely hit Putin, his family and his circle – Republican lawmakers are itching to sanction the former Olympic gymnast that news reports have identified as Putin’s romantic partner – along with Russia’s privileged oligarchs.
Other targets would likely include Russia’s banks and financial system at large and Russia’s military leaders, military and their funding sources, among others.
For historical context, Western sanctions issued when Russia invaded and annexed Crimea in 2014 included limits on trade, the blocking of assets under American jurisdiction and limits on access to the U.S. financial system, which are maintained to this day on at least 735 individuals, entities and vessels, according to the Office of Foreign Assets Control.
For the U.S. and its European allies, cutting Russia out of the SWIFT financial system, which shuffles money from bank to bank around the globe, would be one of the toughest financial steps they could take, damaging Russia’s economy immediately and in the long term. The move could cut Russia off from most international financial transactions, including international profits from oil and gas production, which in all accounts for more than 40% of the country’s revenue.
Allies on both sides of the Atlantic also considered the SWIFT option in 2014, when Russia invaded and annexed Ukraine’s Crimea and backed separatist forces in eastern Ukraine. Russia declared then that kicking it out of SWIFT would be equivalent to a declaration of war. The allies – criticized ever after for responding too weakly to Russia’s 2014 aggression – shelved the idea.
Russia since then has tried to develop its own financial transfer system, with limited success.
The U.S. has succeeded before in persuading the SWIFT system to kick out a country – Iran, over its nuclear program. But kicking Russia out of SWIFT would also hurt other economies, including those of the U.S. and key ally Germany.
The United States holds one of the most powerful financial weapons to wield against Putin – blocking Russia from access to the U.S. dollar. Dollars still dominate in financial transactions around the world, with trillions of dollars in play daily.
Transactions in U.S. dollars ultimately are cleared through the Federal Reserve or through U.S. financial institutions. Crucially for Putin, that means foreign banks have to be able to access the U.S. financial system to settle dollar transactions.
The ability to block that access gives the United States the ability to inflict financial pain well beyond its borders. Previously, the U.S. has suspended financial institutions from dollar clearing for allegedly violating sanctions against Iran, Sudan and other countries.
Unlike the SWIFT option and the other financial measures, it’s one the U.S. could do on its own. Many Russians and Russian companies would be stymied in carrying out even the most routine transactions, like making payroll or buying things, because they would have no access to the U.S. banking system.
U.S. export controls could cut off Russia from the high tech that helps warplanes and passenger jets fly and makes smartphones smart, along with the other software and advanced electronic gear that make the modern world run.
That could include adding Russia to the most restrictive group of countries for export control purposes, together with Cuba, Iran, North Korea and Syria, officials said.
That would mean that Russia’s ability to obtain integrated circuits, and products containing integrated circuits, would be severely restricted, because of the global dominance of U.S. software, technology and equipment. The impact could extend to aircraft avionics, machine tools, smartphones, game consoles, tablets and televisions.
Such sanctions could also target critical Russian industry, including its defense and civil aviation sectors, which would hit Russia’s high-tech ambitions, whether in artificial intelligence or quantum computing.
Like some of the other penalties under consideration, U.S. export restrictions would risk motivating businesses to look for alternatives in other countries, including China.
The Biden administration limited Russia’s ability to borrow money by banning U.S. financial institutions from buying Russian government bonds directly from state institutions last year. But the sanctions didn’t target the secondary market, leaving this as a possible next step.