WASHINGTON — President Joe Biden on Tuesday rolled out the first of what the U.S. says could be an ever-fiercer, ever-broader cascade of financial sanctions and penalties over Russia’s moves against Ukraine.
Tuesday’s first installment of sanctions hit members of Putin’s inner circle and their families and two banks that the U.S. considers especially crucial to the Kremlin and Russia’s military. Another new U.S. measure limits Russia’s power to raise money abroad.
U.S. officials made clear they were holding in possible reserve more devastating measures, in case Russia escalates actions threatening Ukraine’s territory and sovereignty. The Biden administration says those more sweeping penalties would cripple Russia’s ability to do business at home and abroad, and likely bring on a recession there.
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Here’s a look at some of the tougher possible penalties that U.S. leaders are holding in abeyance — while watching for new Russian steps against Ukraine. It is not yet clear which options the U.S. will choose.
Nord Stream 2 natural gaz pipeline
Germany said Tuesday it will suspend certification for the 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 its dependence on Russia’s natural gas.
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Biden refused to break with ally Germany and has fought off multiple attempts by Congress to impose financial penalties on anyone who does business with Nord Stream 2. This effectively makes it impossible to finance the operation of the pipeline. 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.
In recent weeks, Biden insists that Nord Stream has no chance if Russia invades Ukraine. “Then there will be no longer a Nord Stream 2. We will bring an end to it,” Biden said.
Russian firms and individuals are subject to sanctions for their participation in the Ukraine crisis.
Officials from the United States suggested that these sanctions are only an indication of what it might do to Russian individuals and companies.
Tuesday’s actions included hitting civilian leaders in Russia’s leadership hierarchy and two Russian banks considered especially close to the Kremlin and Russia’s military, with more than $80 billion in combined assets. That includes freezing all of those banks’ assets under U.S. jurisdiction.
But U.S. officials emphasized Washington still could take more of Russia’s banks, including its biggest, offline with a push of a button.
In general, the U.S. intends to impose economic sanctions on Putin in order to make him change his ways. This will minimize any adverse effects on Russians, as well the collateral economic harm to the U.S. allied countries.
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.
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The SDNs are also known as individuals or companies that have been owned by, controlled by, or act on behalf of the targeted country. Their assets are usually blocked, and it is nearly impossible for the U.S. to deal with SDNs. The designation is available to any individual, group, company, or aircraft.
Sectoral sanctions can also be used to harm 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. While some trade will be restricted, some transactions will still be permitted by sectoral sanctions.
Historic context: Western sanctions imposed by the West after Russia annexed Crimea and restricted trade. They also blocked assets that were under American control and limited access to the U.S. banking system. The Office of Foreign Assets Control reports that these restrictions continue to be applied to 735 persons, entities, or vessels.
Russia is out of SWIFT’s financial system
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.
The SWIFT option was also explored by allies from both Atlantic countries in 2014 when Russia annexed Crimea. It also supported separatist forces of eastern Ukraine. Russia claimed then that SWIFT’s removal would amount to declaring war. The allies — criticized ever after for responding too weakly to Russia’s 2014 aggression — shelved the idea.
Russia has attempted to create its own financial transfer system since that time, but with little success.
The U.S. has succeeded before in persuading the SWIFT system to kick out a country — Iran, over its nuclear program. The U.S. would have to expel Russia from SWIFT, which could cause economic damage for other countries such as the U.S.’s key ally Germany.
Russia’s access to U.S. dollar is being blocked over Ukraine
The United States holds one of the most powerful financial weapons to wield against Putin — blocking Russia from access to the U.S. dollar. With trillions of dollars being used daily, the dollar still holds sway in global financial transactions.
Transactions made in U.S. Dollars are ultimately cleared by the Federal Reserve and U.S. banks. For Putin this means that foreign banks must be able access the U.S. banking system in order to settle dollars transactions.
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This access block gives the United States the power to cause financial distress far beyond its borders. For allegedly violating the sanctions against Iran and Sudan, the U.S. suspended dollars clearing services to financial institutions.
Unlike the SWIFT option and the other financial measures, it’s one the U.S. could do on its own. Russians, and Russian-owned companies, would face difficulties in carrying out routine transactions such as buying or payroll. They would not have any access to U.S. banks.
Ukraine: Restricting Russia’s exports
U.S. export restrictions could make Russia less able to access the advanced technology that makes smartphone smart and helps in warplane and passenger flight.
Officials suggested that Russia could be added to the list of most restricted countries in export control.
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. This could impact aircraft avionics and machine tools as well as smartphones, tablet computers, gaming consoles, televisions, and tablets.
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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.
As with other sanctions, U.S. export limitations could encourage businesses to seek alternatives in countries other than China.
