WASHINGTON — The United States and European nations agreed Saturday to impose the most potentially crippling financial penalties yet on Russia over its unrelenting invasion of Ukraine, going after the central bank reserves that underpin the Russian economy and severing some Russian banks from a vital global financial network.
The decision, announced as Ukrainian forces battled Saturday to hold Russian forces back from Ukraine’s capital and residents sheltered in subway tunnels, basements and underground garages, has potential to spread the pain of Western retaliation for President Vladimir Putin’s invasion to ordinary Russians far more than previous rounds of penalties.
“Putin embarked on a path aiming to destroy Ukraine, but what he is also doing, in fact, is destroying the future of his own country,” EU Commission President Ursula von der Leyen said.
Since Russia invaded late last week, sanctions have increased in intensity by the European Union and the United States as well as other allies.
While U.S. and European officials made clear they still were working out the mechanics of how to implement the latest measures, and intend to spare Russia’s oil and natural gas exports, the sanctions in total potentially could amount to some of the toughest levied on a nation in modern times. These measures, if implemented fully as intended by the U.S. and European officials will greatly damage the Russian economy. They also severely restrict its ability import or export goods.
The U.S. and European allies announced the moves in a joint statement as part of a new round of financial sanctions meant to “hold Russia to account and collectively ensure that this war is a strategic failure for Putin.”
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The central bank restrictions target access to the more than $600 billion in reserves that the Kremlin has at its disposal, and are meant to block Russia’s ability to support the ruble as it plunges in value amid tightening Western sanctions.
U.S. officials said Saturday’s steps were framed to send the ruble into “free fall” and promote soaring inflation in the Russian economy.
Inflation would rise if the ruble falls, and this would be bad for everyone in Russia as well as those who were previously sanctioned. The resulting economic disruption, if Saturday’s measures are as harsh as described, could leave Putin facing political unrest at home.
Analysts foresaw Russian banks running at an increasing rate of attack by the Russians. Government reserves would plummet as Russia scrambled in vain to purchase their desired currency.
Officials from the United States noted that Russia’s previously announced sanctions had already been implemented. This has brought Russia’s currency down to the lowest point against the dollar and made its stock market one of the most volatile in recent history.
Saturday’s move also includes cutting key Russian banks out of the SWIFT financial messaging system, which daily moves countless billions of dollars around more than 11,000 banks and other financial institutions around the world.
Officials said that the finer points of the sanctions were still being worked out, while they try to minimize the negative impact on European energy purchases and other economies.
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 stated then that the expulsion of SWIFT from Russia would constitute a declaration war. The allies — criticized ever after for responding too weakly to Russia’s 2014 aggression — shelved the idea back then. Russia has since tried unsuccessfully to create its own financial transfer system.
The U.S. has succeeded before in persuading the Belgium-based SWIFT system to kick out a country — Iran, over its nuclear program. However, kicking Russia from SWIFT could cause economic damage to other countries such as those of key allies Germany and the U.S.
Rarely have the West and its allies used their full arsenal of financial weapons to take down a nation. Two previous targets were Iran and North Korea. Russia with its huge petroleum reserves plays an even larger role in international trade and some parts of Europe depend upon its natural gas.
Partially, the West disconnection SWIFT on Saturday was announced. It leaves Europe and America room for more severe penalties. Officials stated that they were still not sure which banks will be disconnected.
Announcing the measures in Brussels, the EU Commission president, von der Leyen, said she would push the bloc to “paralyze the assets of Russia’s Central bank” so that its transactions would be frozen. Cutting several commercial banks from SWIFT “will ensure that these banks are disconnected from the international financial system and harm their ability to operate globally,” she added.
“Cutting banks off will stop them from conducting most of their financial transactions worldwide and effectively block Russian exports and imports,” she added.
The EU was not willing to approve Russia’s sanction through SWIFT. EU trade totaled 80 billion Euros, 10 times the amount of the United States.
Germany had resisted the move because it would be very damaging to them. But Foreign Minister Annalena Baerbock said in a statement that “after Russia’s shameless attack … we are working hard on limiting the collateral damage of decoupling (Russia) from SWIFT so that it hits the right people. What we need is a targeted, functional restrictions of SWIFT.”
As another measure, the allies announced a commitment “to taking measures to limit the sale of citizenship — so-called golden passports — that let wealthy Russians connected to the Russian government become citizens of our countries and gain access to our financial systems.”
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A trans-Atlantic taskforce was also formed by the group to help ensure these and other sanctions against Russia are effective through asset freezing and information sharing.
“These new sanctions, which include removing several Russian banks from SWIFT and sanctioning Russia’s central bank, are likely to cause serious damage to the Russian economy and its banking system,” said Clay Lowery, executive vice president of the Institute of International Finance. “While details on how the new sanctions affect energy are still emerging, we do know that sanctions on its central bank will make it more difficult for Russia to export energy and other commodities.”
Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security, said that even without a complete SWIFT ban, “these measures will still be painful to Russia’s economy. They reinforce the measures already taken earlier this week by making transactions more complicated and difficult.”
Ziemba said that the extent of damage the sanctions cause to the Russian economy depends on how many banks are closed and what measures are taken by the Central Bank to limit their ability to function.
“Regardless, these sort of escalating sanctions, removing banks from SWIFT, restricting the Central Bank, this will all make it more difficult to get commodities from Russia and will increase the pressure on the financial market.”
Meanwhile, U.S. Embassy Russia warns Americans that Russian credit and debit cards are being denied to multiple non-Russian citizens. According to the American Embassy, Saturday’s tweet stated that Russian banks have been subject to new sanctions since the invasion of Ukraine. According to the embassy, U.S. citizens living in Russia must be prepared for alternative payment methods in case their cards are declined. The embassy reminded Americans that Russia is not a destination for them to travel.
—Casert reported from Brussels and Sweet from New York. Reporting on this story was made possible by Fatima Hussein (Associated Press), Josh Boak (Associated Press), and Frank Jordan (Associated Press).