The United States and European allies are preparing what is described on both sides of the Atlantic as the most aggressive package of economic and financial sanctions ever collected to punish Russian President Vladimir Putin if he approves of an invasion of Ukraine.
The hope in Western capitals is that the threat of such measures alone will be enough to stop Putin from attacking Ukraine in the first place – and if it fails, to strike Moscow with so many economic weapons that it will weaken the Kremlin’s resolve.
So what specific measures are the US and the EU ready to impose?
In recent days, the United States and the United Kingdom have escalated plans to punish Putin’s inner circle by targeting Russia’s economic elite and the money it parks in the west.
Senior Biden officials said they had already drafted “concrete packages of sanctions” focusing on Russian oligarchs and their families. They would not say who would be on the list due to “risk of flight” concerns, but the scope could be wide. U.S. officials said some names would be derived from a classified list of potential targets sent by Congressional Treasury Department in 2018.
Given how many Russian oligarchs have assets and other financial interests in the UK, UK support has been crucial to US efforts, and senior Biden officials have highlighted their coordination with London on individual sanctions packages.
On Monday, the United Kingdom promised to introduce new legislation strengthening London’s ability to target Kremlin-related businesses and their owners in the country.
The EU is also drawing up a list of people who will be affected by personal sanctions such as asset freezes and travel bans, but in the past it has required a higher burden of proof to be included in such lists by the US, given the possibility of those affected. raises legal challenges in European courts.
The United States and the European Union also want to strike at the heart of Russia’s banking system and significantly tear Moscow away from the international financial system after failing to do so since Crimea’s annexation in 2014.
The largest Russian financial institutions, including Sberbank, VTB, Gazprombank, the Russian Direct Investment Fund and Alfa Bank, are on the line of fire.
Meanwhile, the United States and its allies are also discussing the exclusion of Russia from Swift, the international payment network, which will further complicate Russia’s ability to interact with the West.
But the EU is less supportive of this move, given the potential consequences for the service’s reputation and how any disruption can be perceived by third countries. An EU official said severing ties with Russia was seen as a “last resort” and that it could be more effective to use targeted financial sanctions that, for example, prevent creditors from converting rubles into dollars.
U.S. officials said last week that “convergence” with EU allies was growing, both in terms of the severity and immediacy of financial sanctions, noting that they would seek to affect both existing and new funding.
Some EU countries have also called for a freeze on Russia’s access to the IMF’s special drawing rights, which act as a reserve currency, according to documents seen by the FT.
The United States and the European Union have discussed imposing very tight controls on Western technology exports in order to do as much damage as possible to Russia’s industrial base and its capacity for innovation.
Traditionally, export controls have been used to prevent sophisticated weapons from falling into the hands of geopolitical adversaries. However, the United States and many European countries have expanded measures to include emerging technologies such as quantum computing and artificial intelligence.
According to people familiar with the Biden administration, one of the most powerful tools the United States could deploy in this area is the so-called “foreign direct product rule,” which has been used to control China’s Huawei technology company. The rule will prevent third countries from exporting certain sensitive technologies containing American components to Russia.
“Export controls are denying Russia something it needs and can’t easily replace anywhere else,” a senior Biden administration official said last week, adding: “What we’re talking about are sophisticated technologies that we design and manufacture, which are a significant contribution to Russia’s strategic ambitions. “
Probably the most politically and economically sensitive in which the US and the EU are preparing sanctions is the energy sector. Moscow relies heavily on energy exports as a source of foreign reserves, and the EU relies on Russian gas for 40 percent of its consumption. Meanwhile, America is concerned about the high energy costs that fuel inflation before the midterm elections.
However, the United States and its allies are discussing the use of unprecedented measures to sanction oil and gas producers, as well as Russian mining companies.
Despite some uncertainty about the position of the new German government, the United States and the EU have decided that if Russia decides to invade Ukraine, it will stop making the controversial Nord Stream 2 pipeline connecting Russia and Germany fully operational. This would be a serious blow to Moscow and could lead to significant economic pain in Germany.
However, the EU’s reliance on Moscow means that there is also considerable scope for potential countermeasures. Brussels is particularly concerned about a possible disruption in gas supplies in the event of war, either because of damage to Ukraine’s pipelines supplying Europe or because Russia is seeking to curb gas supplies.
The Trade Secrets Bulletin is the email you should read on the FT about the changing face of international trade and globalization. Written by FT sales specialist Alan Beatty, it is delivered to your inbox every Monday. Register here