Ukraine conflict

How could the west punish Russia if it invades

Ukraine?

US and European allies are preparing aggressive economic and financial

sanctions

James Politi in Washington and Henry Foy in Brussels

FEBRUARY 1 2022

The US and European allies are preparing what is being

described on both sides of the Atlantic as the most
aggressive package of economic and financial sanctions ever
assembled to punish Russian president Vladimir Putin if he
approves an invasion of Ukraine.

The hope in western capitals is that the mere threat of these

measures will be enough to deter Putin from attacking
Ukraine in the first place — and if that fails, to pound
Moscow with so many economic weapons that it will weaken
the Kremlin’s resolve.

So what measures specifically are the US and the EU

prepared to impose?

Oligarchs
In recent days, the US and the UK have escalated plans to
punish Putin’s inner circle by taking aim at Russia’s
economic elite and the money it has parked in the west.

Senior Biden administration officials said they have now

drawn up “specific sanctions packages” focused on Russian
oligarchs and their family members. They would not say who
would be on the list, because of concerns about “flight risk”,
but the scope could be broad. US officials said some names
would be drawn from a classified list of potential targets sent
by Treasury to Congress in 2018.

Given how many Russian oligarchs have assets and other

financial interests in the UK, support from Britain has been
crucial to US efforts, and senior Biden administration
officials have touted their co-ordination with London on the
individual sanctions packages.

On Monday, the UK vowed to introduce new legislation

strengthening London’s ability to target Kremlin-linked
businesses and their owners in the country.

The EU is also drawing up a list of individuals to be hit with

personal sanctions such as asset freezes and travel bans, but
has in the past demanded a higher burden of proof for
inclusion in such lists than the US, given the ability for those
affected to mount legal challenges in European courts.

Banks
The US and the EU also want to strike at the heart of the
Russian banking system and cut Moscow significantly out of
the international financial system, having failed to do so
following the 2014 annexation of Crimea.

Russia’s largest financial institutions, including Sberbank,

VTB, Gazprombank, The Russian Direct Investment Fund
and Alfa Bank, are all in the line of fire.
and Alfa Bank, are all in the line of fire.

Meanwhile, the US and its allies have also been debating

excluding Russia from Swift, the international payments
network, which would further complicate the ability of
Russian banks to interact with the west.

But the EU is less supportive of this step, given the potential

fallout on the service’s reputation, and how any
disconnection might be perceived by third countries. One
EU official said disconnecting Russia was seen “as a last
resort”, and that it may be more effective to use targeted
financial sanctions that, for instance, prevent lenders from
converting roubles into dollars.

US officials said last week there was growing “convergence”

with EU allies on both the severity and the immediacy of the
financial sanctions, noting that they would aim to hit both
existing and new financing.

Some EU states have also called for Russia’s access to the

IMF’s Special Drawing Rights — which act as reserve
currency — to be frozen, according to documents seen by the
FT.

Technology
The US and the EU have discussed imposing very stringent
export controls on western technology in order to inflict as
much damage as possible to Russia’s industrial base and its
capacity to innovate.

Traditionally, export controls have been used as a means to

Traditionally, export controls have been used as a means to
prevent sophisticated weaponry from getting into the hands
of geopolitical adversaries. However, the US and many
European countries have expanded the measures to include
emerging technologies such as quantum computing and
artificial intelligence.

According to people familiar with the Biden admin’s

thinking, one of the most potent tools the US could deploy in
this realm is the so-called “foreign direct product rule”,
which was used to rein in Chinese technology company
Huawei. The rule would prevent third countries from
exporting certain sensitive technologies containing US
components to Russia.

“Export controls deny something to Russia that it needs and

can’t easily replace from anywhere else,” a senior Biden
administration official said last week, adding: “What we’re
talking about are sophisticated technologies that we design
and produce that are essential inputs to Russia’s strategic
ambitions.”

Energy
Arguably the most politically and economically sensitive
arena in which the US and the EU are preparing sanctions is
the energy sector. Moscow is heavily reliant on energy
exports as a source of foreign reserves, and the EU relies on
Russian gas for 40 per cent of its consumption. Meanwhile,
America is concerned about high energy costs stoking
inflation ahead of the midterm elections.
Yet the US and its allies have been debating using
unprecedented measures to impose sanctions on oil and gas
producers as well as Russian companies in the mining
sector.

Despite some uncertainty over the position of the new

German government, the US and the EU have determined
that if Russia decides to invade Ukraine, they would stop the
controversial Nord Stream 2 gas pipeline linking Russia and
Germany from becoming fully active. This would be a major
blow to Moscow and could also lead to significant economic
pain in Germany.

However, the EU’s reliance on Moscow means there is also

significant scope for potential countermeasures. Brussels is
particularly concerned about a possible collapse in gas
supplies in the event of a war, either because of damage to
Ukrainian pipelines supplying Europe or Russia moving to
restrict gas supplies.

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