Ukraine crisis: What Western sanctions mean for Russia?

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Ukraine crisis: What Western sanctions mean for Russia?

 Ukraine crisis: What Western sanctions mean for Russia?
Image source: Tomasz Makowski,Shutterstock

Highlights

  • German chancellor Olaf Scholz stopped the accreditation of the Russia-led Nord Stream 2 gas pipeline.

    The Biden administration plans to cut the "correspondent" banking ties between the American and Russian banks that facilitate international payments.

  • President Joe Biden said he would consider personal sanctions on Vladimir Putin.

The United States and its allies are considering a series of sanctions against Moscow in the wake of the Russian annexation of the two “breakaway” regions of Ukraine this week.

President Vladimir Putin on Monday ordered troops into Donetsk People's Republic and Lugansk People's Republic after declaring them independent in a decree backed by the separatist leaders.

Putin’s action invited a swift response from Western leaders, who called it a violation of the seven-year-old ceasefire treaty mediated by France and Germany.

German chancellor Olaf Scholz stopped the Russia-led Nord Stream 2 gas pipeline accreditation, even as other EU states and the US consider tough sanctions that can cripple the Russian economy.

Here’s how the Western sanctions could impact Russia:

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Financial Institutions

The Biden administration plans to cut the "correspondent" banking ties between the American and Russian banks that facilitate international payments.

Several smaller Russian state-run banks, like Bank Rossiya, are already under US sanctions.

Washington also plans to designate wealthy Russians and companies under the stringent Specially Designated Nationals (SDN) list that allows banning trade and freezing their US assets.

People familiar with the matter cited by Reuters said Russia’s VTB Bank, Sberbank, VEB, and Gazprombank could be possible targets but not yet clear if they would be placed under the SDN list.

The measure would make it hard for the Russian companies to transact in US dollars. European lenders currently account for nearly US$30 billion in foreign banks' exposure to Russia.

Reuters reported citing the Russian central bank that total foreign assets and liabilities of Russian banks stood at US$200.6 billion and US$134.5 billion, respectively, of which the US dollar share is around 53% of both, suggesting the potential impact the US measure would have on Russian banks.

Last week, the UK threatened to block the Russian companies from raising capital in London.

Likewise, Russian individuals face asset freeze and travel ban. Europe and the US already have applied this tool to several Russian individuals. In one such latest measure, the EU on Monday penalized five people involved in a Russian parliamentary election in annexed Crimea in September 2021.

President Biden said he would consider personal sanctions on Putin after the US Senate Democrats unveiled a bill in January that calls for sweeping sanctions against top Russian officials, including Putin.

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Chip restrictions

The US might also block global electronics supplies, including American chip exports, to Russia in the event of a Ukraine attack. The West deployed similar technology sanctions during the Cold War.

Nord Stream 2 gas pipeline project

Besides withholding the regulatory approval to the Nord Stream 2 gas pipeline project, the West might further expand the restrictions on the Russian energy trade. Several Russian state-run oil and gas majors, Gazprom, Rosneft, Lukoil, Gazpromneft and Surgutneftegaz, are already under various curbs.

The new sanctions might be widened to prevent companies from settling transactions in US dollars.

Blocking Russia from the SWIFT system

Russian financial institutions could be removed from SWIFT, which handles international financial transfers. It is used by financial organizations in more than 200 countries for monetary transfers. Earlier, Iranian banks were cut off from SWIFT due to global sanctions against its nuclear program.

Similar calls were also proposed against Russia in 2014 when Moscow seized Crimea.

Banning rouble bonds

The US may further clamp a ban on Russian rouble bonds on the secondary market. According to Reuters, the Russian bonds or OFZs floated as an option are already restricted in the US. Biden had barred US investors from buying new rouble bonds in 2021 over allegations of election interference. The measure could deprive it of securing international finances critical for economic growth.

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