WASHINGTON (AP) — With Russia’s military onslaught across Ukraine, President Joe Biden is expected to announce Thursday at least some of the toughest sanctions and financial penalties the United States, the world’s largest economy, can impose. in response.
Biden for weeks promised “quick and significant costs” if Russian forces entered Ukraine, and he made it clear that the United States would go after Russia financially, not militarily.
Biden administration officials have outlined moves that would collapse the Russian ruble, isolate Moscow from the global financial system and possibly drive the country into recession. They also said minimizing damage to European economies was a major concern.
An overview of some of the steps being considered and their potential impact:
MOST LIKELY AND SOME LESS LIKELY PUNISHMENTS:
Penalties targeting Russia’s largest state banks and new export controls that would deprive the country’s industries and military of US semiconductors and other high-tech products are part of the mix.
U.S. officials seemed less sure about cutting Russia off from the international financial system and dollar transactions, in part out of concern about the economic fallout at home and in Europe.
These measures include banning Russia from the SWIFT financial system that transfers money from bank to bank around the world, and shutting down the Kremlin’s ability to do business in dollars. This would go a long way in separating Russia from global financial systems and, together with the ban on dollar clearing, hamper even the most common business transactions.
CUT HIGH-TECH EXPORTS:
U.S. export controls could deprive Russian industries and military of high-tech components that help fighter jets and passenger planes fly and make smartphones smart, as well as other software and electronic equipment advancements that make the modern world work.
The US response could add Russia to the most restrictive group of countries for export control purposes, joining Cuba, Iran, North Korea and Syria.
This would limit Russia’s ability to obtain integrated circuits and products containing integrated circuits, due to the global dominance of US software, technology and equipment. The impact could extend to aircraft avionics, machine tools, smartphones, game consoles, tablets and televisions.
Sanctions could target critical Russian industry, including its defense and civil aviation sectors, undermining Russia’s high-tech ambitions, whether in artificial intelligence or quantum computing.
US export restrictions would risk motivating companies to seek alternatives elsewhere, including in China.
SANCTIONS AGAINST RUSSIAN OLIGARCHS, BANKS AND COMPANIES
An administration official told reporters earlier this week that the United States was ready to impose sanctions on Russia’s biggest banks, including state-owned companies SberBank and VTB. They combine for nearly $750 billion in assets, the United States said, more than half of the total total in Russia.
US sanctions imposed this week targeted two banks close to the Kremlin and the Russian military, with measures that included freezing any assets the US could reach.
Another step already taken aims to cut off the Russian government, its central bank and its sovereign wealth funds from American funding. This action, and a similar action by the Europeans, means that Russia can no longer raise funds in the United States and Europe, and its new debt can no longer be traded in American or European markets.
The Moscow Stock Exchange briefly suspended trading in all of its markets on Thursday morning. After trading resumed, the ruble-denominated MOEX stock index fell more than 20% and the dollar-denominated RTS index plunged more than a third.
Russia’s abundant foreign exchange reserves, coupled with the current high prices the country gets for its oil and its relatively low debt, would help Russia cope with sanctions in the short term, said Oleg Ignatov, senior Russia analyst. within the International Crisis Group.
In the long run, Ignatov said, the kind of punishment promised by Biden would deepen Russia’s economic stagnation and “will be felt by ordinary Russians in a way that most have not yet had to bear the cost of this conflict.” “.
Sanctions are imposed on persons on a list of Specially Designated Nationals and Blocked Persons through the Treasury Department’s Office of Foreign Assets Control.
The list includes people and companies owned, controlled by, or acting on behalf of a targeted country. Traditionally, their assets will be blocked and it is almost completely forbidden in the United States to do business with those on the list. Individuals, groups, companies and even aircraft can receive this designation.
Sanctions against specific sectors are also an option. They could apply to specific Russian companies – in energy, finance, technology and defence, for example – and limit certain exchanges, but allow certain transactions.
Western sanctions issued when Russia invaded and annexed Crimea in 2014 included limits on trade, blocking of assets under US jurisdiction and restricted access to the US financial system. These are maintained on at least 735 people, entities and vessels to date, according to the Office of Foreign Assets Control.
For the United States and Europe, excluding Russia from the SWIFT financial system, which transfers money from bank to bank around the world, would be one of the most difficult financial steps, damaging the Russian 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 together account for more than 40% of the country’s revenue.
Allies on both sides of the Atlantic considered the SWIFT option in 2014. Russia said taking the step would amount to a declaration of war. The allies, later criticized for responding too weakly at the time, dropped the idea.
Since then, Russia has tried to develop its own financial transfer system, with limited success.
The United States has already succeeded in persuading the SWIFT system to start Iran over its nuclear program. But acting against Russia would also hurt other economies, including those of the United States and key ally Germany.
COMPENSATION IN DOLLARS
A powerful financial tool held by the United States is the blocking of Russia’s access to the US dollar, which dominates global financial transactions.
Dollar transactions are ultimately cleared by the Federal Reserve or US financial institutions. For Russian President Vladimir Putin, this means that foreign banks must be able to access the American financial system to settle transactions in dollars.
Previously, the United States suspended financial institutions from clearing dollars for allegedly violating sanctions against Iran, Sudan and other countries.
Unlike the SWIFT option and other financial measures, this is one the US could do on its own. Many Russians and Russian businesses would be blocked from performing even the most common transactions, such as payroll and shopping, because they would not have access to the US banking system.