Russian economy shakes after sanctions imposed by US and Europe
European and American officials had announced most of the sanctions on Saturday, but many details were not released until Monday, when the restrictions were implemented. Additional measures have also been deployed.
Under the new regime, all people in the United States and the European Union are banned from trading with Russia’s central bank. The sanctions also apply to the Russian Ministry of Finance and its sovereign wealth fund. The United States and its allies were executing a hastily assembled strategy designed to squeeze the Russian economy and make it very difficult for Russian leaders to mine the money.
The restrictions amount to stifling Russia from the international financial system.
Private companies have joined governments in Russia’s isolation. Facebook, Google and YouTube have announced plans to block Russian state media from monetizing their platforms. Twitter announced on Monday that it would start adding tags to tweets containing content from Russian state media websites. Oil giant Shell on Monday announced plans to shed its joint ventures with Russian gas giant Gazprom, making it the third major oil company to announce such a move. FedEx and UPS announced they were halting deliveries to Russia and Ukraine, and US and foreign governments moved to block much of Russia’s banking system from major international markets.
The EU also announced that it would close airspace to Russian planes and support Ukraine’s arms purchase.
The United States and its allies have not stopped Russia from exporting energy, however, as Europe in particular is heavily dependent on Russian gas.
The US government said it was granting an exemption allowing ‘certain energy-related transactions’ with Russia’s central bank, as the West tried to continue the flow of Russian energy exports to support the European economy and maintain gas prices.
The US Treasury Department also announced sanctions on Monday morning against entities linked to the Russian sovereign wealth fund, including its management company and one of the sovereign wealth fund’s subsidiaries. It also imposed sanctions on the manager of this management company.
“The unprecedented action we are taking today will significantly limit Russia’s ability to use assets to finance its destabilizing activities and will target funds [Russian President Vladimir] Putin and his entourage depend on enabling his invasion of Ukraine,” Treasury Secretary Janet L. Yellen said in a statement. “Today, in coordination with our partners and allies, we are delivering on key commitments to restrict Russia’s access to these valuable resources.”
Two senior administration officials, speaking on condition of anonymity to describe the White House announcement, said Monday the freeze was immediately effective and intended to prevent Russia from recalling its international reserves from the world. whole.
The sanctions reflect the extraordinary outpouring of support for Ukraine in the West, but they also carry the risk of a further escalation of hostilities with Moscow. Putin has responded to Western statements in recent days by putting the country’s nuclear forces on high alert. Ukrainian and Russian officials held their first diplomatic talks since the start of the invasion on Monday, and they plan to continue talks in the coming days.
The banking restrictions are arguably the most severe form of economic retaliation ever approved by Western powers in response to Russia’s attack on Ukraine. They aim to prevent Putin from using his country’s large financial reserves – totaling more than $600 billion – to stabilize Russia’s economy in the face of further sanctions and economic measures imposed by the West.
As of June 30 last year, 32% of Russia’s foreign exchange reserves were in euros and 16% in US dollars, according to its central bank. About 7% was in sterling, 13% in Chinese renminbi and 22% in monetary gold. The rest was held in other currencies.
“All of a sudden, the United States and Europe have rendered Putin’s war chest useless. … The fact that the United States and Europe have done this in a unified way sends a crystal clear message that Russia will face dramatic costs as long as Putin’s war of aggression continues,” he said. Edward Fishman, former sanctions chief for Russia and Europe at the State Department. “This action represents a sea change in US and European strategy. Just 72 hours ago, a step like this was unthinkable.
Even before Saturday, the United States had announced sanctions targeting almost 80% of the total assets of the Russian banking sector. His measures include separating Russia’s largest bank from the US financial system, in addition to restricting access to technology that could be used to help Russian companies. US sanctions have also targeted members of Putin’s inner circle and other business leaders in Russia.
The effect was dramatic. Rating agency S&P has downgraded Russia’s debt to junk status, making it even more expensive for Russia to borrow money and forcing some investors to offload debt.
Putin’s bank reserves were intended to cushion the impact of such a blow. “The announced measures will undermine Russia’s ability to support the rouble,” said Richard Nephew, senior research fellow at Columbia University. “The Russians will not be able to defend the currency easily and its value will fall.”
Some critics wondered how Putin might react to the attack on Russia’s economy. Mark Weisbrot, a liberal economist and director of the Center for Economic and Policy Research, said imposing sanctions on reservations could lead to “economic collapse”.
“The Biden administration must defuse this conflict and move toward a diplomatic solution before it’s too late,” Weisbrot said. “[Ukrainian President Volodymyr] Zelensky wants to negotiate without preconditions; Washington should do the same.
But senior administration officials have defended their strategy as a necessary response to Putin’s aggression. They also said they were closely watching Belarus’ potential support for the war effort, which could trigger separate economic restrictions for that country.
Adam Smith, a partner at Gibson Dunn and a former sanctions official in the Obama administration, said the attack on Russia’s central bank reflects how quickly events unfolded in Eastern Europe. Smith pointed out that such moves have generally been brushed aside because central banks play such a crucial role in a country’s economy, noting that pursuing them includes “serious and potentially unknowable side effects.” If so, Smith said, it’s possible the sanctions will make it harder for Europe to buy oil and gas while hurting the average Russian economically.
“It was always seen as almost irrelevant — the thing to do when sanctions and diplomacy have seemingly run out,” Smith said. “The fact that the international community has been willing to go this far and suffer the consequences…shows how far this crisis has gone in its first week alone.”
Mary Ilyushina, Jeanne Whalen, Steven Mufson and Cat Zakrzewski contributed to this report.