How Severe May Us Sanctions Be Against Russia?

President Joe Biden is likely to announce on Thursday at least some of the heaviest sanctions and financial penalties that the United States, the world’s largest economy, can conjure in response to Russia’s military attacks in Ukraine.

For weeks, Biden has warned “rapid and severe repercussions” if the Russian military enters Ukraine, and he has made it plain that the US will pursue Russia financially rather than militarily.

Officials in the Biden administration have suggested actions that would devalue the currency, isolate Moscow from the global financial system, and possibly plunge the nation into recession. They’ve also stated that limiting the harm to European economy is a top priority.

Here’s a look at some of the actions being examined and how they may affect things:

Sanctions on Russia’s largest state banks, as well as new export curbs that would deprive the country’s industries and military of American semiconductors and other high-tech equipment, figure prominently in the mix.

Officials in the United States have expressed reservations about shutting Russia off from the international financial system and dollar transactions, partially due to fears of negative economic consequences at home and in Europe.

Banned from the SWIFT banking system, which transports money from bank to bank throughout the world, and the Kremlin’s ability to do business in dollars are two examples. These would go a long way toward isolating Russia from global financial networks, stymieing even the most regular corporate operations, thanks to the dollar-clearing prohibition.

Russian companies and the military might be deprived of high-tech components that allow fighters and passenger aeroplanes fly and make cellphones smart, as well as other software and complex electrical gear that keeps the modern world running.

Russia, along with Cuba, Iran, North Korea, and Syria, might be added to the most restricted list of nations for export control reasons as a result of the US response.

Due to the worldwide dominance of US software, technology, and equipment, Russia’s ability to purchase integrated circuits and goods utilising integrated circuits would be limited. Aircraft avionics, machine equipment, cellphones, gaming consoles, tablets, and televisions might all be affected.

Sanctions may hit Russia’s most important industries, such as military and civil aviation, undermining the country’s high-tech objectives, whether in artificial intelligence or quantum computing.

Export limitations in the United States might encourage corporations to search for alternatives overseas, such as China.

Sanctions Directed At Russia’s Oligarches, Banks, And Companies

The US was poised to slap sanctions against Russia’s major banks, including state-owned SberBank and VTB, according to an administration official briefing reporters earlier this week. According to the US, they have almost $750 billion in assets, which is more than half of Russia’s total.

Sanctions announced by the United States this week targeted two Kremlin-linked banks and Russia’s military, with measures including the freeze of all assets that the US could access.

Another step has already been taken to isolate Russia’s government, central bank, and sovereign wealth funds from American funding. Because of this move, as well as a similar one by Europeans, Russia can no longer borrow money from the US or Europe, and its new debt can no longer be traded on US or European exchanges.

On Thursday morning, the Moscow stock exchange momentarily halted trading on all of its markets. The ruble-denominated MOEX stock index fell more than 20% when trading restarted, while the dollar-denominated RTS index fell more than a third.

According to Oleg Ignatov, a senior Russia analyst with the International Crisis Group, Russia’s vast cash reserves, along with the present high prices for its petroleum and its comparably low debt, will let Russia weather sanctions in the medium run.\

Ignatov believes that the type of penalty proposed by Biden will worsen Russia’s economic stagnation in the long run “be felt by ordinary Russians in a way that most have not yet had to suffer the cost of this conflict.”

Individuals on the Treasury Department’s Office of Foreign Assets Control’s Specially Designated Nationals and Blocked Person List face sanctions.

Individuals and corporations owned, controlled, or operating on behalf of a targeted country are included on the list. Their assets are often frozen, and the United States is nearly totally barred from engaging with anyone on the list. This distinction can be bestowed to individuals, groups, corporations, and even aeroplanes.

Sanctions on specific industries are also an option. They might apply to certain Russian enterprises — for example, in the energy, banking, technology, and defense sectors — and restrict some commerce while allowing others.

When Russia attacked and seized Crimea in 2014, the United States imposed sanctions that included trade restrictions, asset freezes, and limited access to the financial system. According to the Office of Foreign Assets Control, they are still in place on at least 735 persons, companies, and vessels.

Cutting Russia out of the SWIFT banking system, which shuffles money from bank to bank throughout the world, would be one of the most difficult financial moves for the US and Europe, causing immediate and long-term economic damage to Russia. Russia might be shut off from most international financial activities as a result of the move, including overseas revenues from oil and gas production, which account for more than 40% of the country’s revenue.

In 2014, allies on both sides of the Atlantic discussed using SWIFT. Russia claimed that taking such a step would be tantamount to declaring war. The allies scrapped the proposal after being chastised for responding too weakly at the time.

Since then, Russia has attempted but failed, to build its own financial transmission system.

The US has already succeeded in convincing the SWIFT system to ban Iran because of its nuclear program. Acting against Russia, on the other hand, would harm other economies, especially that of the United States and its vital partner Germany.

Blocking Russia’s access to the US dollar, which dominates global financial operations, is a significant financial instrument in the US’s arsenal.

The Federal Reserve or U.S. banking institutions clear dollar transactions in the end. For Russian President Vladimir Putin, this means foreign banks must be allowed to settle dollar transactions through the US financial system.

The US has already barred banking firms from clearing dollars due to suspected violations of sanctions on Iran, Sudan, and other countries.

It’s something the US could do on its own, unlike the SWIFT option and other financial actions. Because they would have no access to the US financial system, many Russians and Russian businesses would be unable to conduct even the most basic activities, such as payroll and purchases.

 

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