U.S. Plots Economic Sanctions On Russia if It Attacks Ukraine

"WASHINGTON -- The Biden administration is finalizing its targets for a barrage of economic sanctions against Russia if it attacks Ukraine -- hitting major Russian banks, state companies and key exports, though the strategy faces obstacles that have hindered previous pressure campaigns.

Administration officials said the planned actions are unparalleled in recent decades against Russia, putting teeth into President Biden's threat to apply punishing financial and other sanctions in the event of a Russian assault.

While decisions aren't final, the officials said, potential targets include several of Russia's largest government-owned banks, such as VTB Bank, the banning of all trade in new issues of Russian sovereign debt and the application of export controls across key sectors such as advanced microelectronics.

The sanctions plans come as the Pentagon warned that Russia has amassed sufficient combat power near Ukraine to take cities and swaths of territory, with any potential invasion likely to result in significant casualties.

Ukrainian leaders, for their part, called for calm and said the U.S. was overstating the threat.

Past U.S. efforts to wage economic warcraft have produced mixed results. Iran and North Korea have adjusted over time to broad economic embargoes over their nuclear-weapons programs, though not without pain for their economies and people. After Russia invaded Ukraine in 2014, the Obama administration went after some energy technology exports, sovereign debt and some government-owned banks and firms, though the scope of those sanctions didn't exact deep damage.

Russia is better prepared now, with deeper foreign-currency reserves, less reliance on foreign debt, faster economic growth and rising prices for oil -- the country's primary revenue source. Russia's role as a top exporter of oil and gas and its economic integration with Europe have previously deterred the U.S. from applying broad sanctions out of concern that they would upset global markets and European allies.

Off the table, for now, are sanctions on oil and natural-gas exports or disconnecting Russia from SWIFT, the basic infrastructure that facilitates financial transactions across the world, the U.S. officials said, but that could change.

Still, this time around, the officials said, the U.S. is doing away with the incremental approach that blunted the impact of the 2014 and other efforts -- and instead is moving to prohibit a broader range of activities from the start.

"We and our allies have a full range of high-impact sanctions ready to go, both immediately after a Russian invasion and in waves to follow. Nothing is off the table," said National Security Council spokeswoman Emily Horne.

"We would start high and stay high, and maximize the pain to the Kremlin," one of the officials said.

European allies are also more in sync with the U.S. than in 2014, the officials said, given that Russian President Vladimir Putin's demands go beyond Ukraine this time to include a reworking of post-Cold War security arrangements in Europe.

Europe understands "that if we're going to change Putin's calculus, we have to be ready together to impose massive consequences," the official said. The U.S. and European Union actions won't be identical but will "deliver a severe and immediate blow to Russia and over time make its economy even more brittle," the official said.

Russian Foreign Minister Sergei Lavrov said this week that the sanctions threats are part of the West's "militaristic frenzy." Russia, he said, is "ready for any developments."

Other than VTB, other large government-owned or controlled banks under consideration for blacklisting are Gazprombank and Sberbank, said one of the officials. Sberbank, which accounts for 30% of net assets in Russia's financial system, may not get hit in the first round of sanctions, according to former officials.

VTB, Gazprombank and Sberbank didn't respond to requests for comment.

The possible blacklisting technically prohibits U.S. banks and other entities from doing business with the targeted banks, and the administration may grant exceptions. But the risk of violators being punished by the U.S. usually encourages foreign banks to comply.

"Banks in Paris and London aren't going to be doing what U.S. banks aren't doing," said Brian O'Toole, a former top Treasury sanctions official in the Obama administration and now a senior fellow at the Atlantic Council, a think tank.

Government-owned companies are also targets of similar sanctions, the U.S. officials said. Though the officials didn't specify which companies, some financial analysts said blacklisting firms like insurer Sogaz, which insures companies tied to the Kremlin, and Sovcomflot, a large energy-shipping company, would hurt the Kremlin and, longer term, the economy.

Sovcomflot's chief financial officer, Nikolay Kolesnikov, said his company has no indication it would be targeted. Given that half his firm's business is outside the country, a blacklisting would likely disrupt petroleum exports and hit global tanker rates, he said. Sogaz didn't respond to a request for comment.

 

Some former officials and critics of the Biden administration are skeptical that its approach will prove different from past efforts. Aside from a more robust Russian economy, they said, Mr. Putin is counting on Germany and other EU leaders to block measures that would have financial repercussions for Europe.

 

Previous sanctions haven't undermined Mr. Putin's domestic popularity enough to fundamentally alter his foreign policies, said some analysts. New sanctions, they said, may bolster Mr. Putin's position, affect Western-facing companies and drive Russia further toward China." [1]

 

1. U.S. Plots Economic Sanctions On Russia if It Attacks Ukraine
Talley, Ian; Forrest, Brett. Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 29 Jan 2022: A.1.