Written by Edward Wong, Michael Crowley and Ana Swanson
President Joe Biden, vowing to turn President Vladimir Putin of Russia into a “pariah,” announced tough new sanctions Thursday aimed at cutting off Russia’s largest banks and some oligarchs from much of the global financial system and preventing the country from importing US technology critical to its defense, aerospace and maritime industries.
The package unveiled by the US government is expected to ripple across companies and households in Russia, where anxiety over Putin’s full-scale invasion of Ukraine has already begun setting in. The nation’s stock market fell more than 30% Thursday, wiping out a huge amount of wealth.
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Here are the latest updates on Russia-Ukraine conflict
The new US sanctions include harsh penalties against the two largest Russian financial institutions, which together account for more than half of the country’s banking assets.
US officials are also barring the export of important US technology to Russia, which could imperil industries there. In addition, the United States will limit the ability of 13 major Russian companies, including Gazprom, the state-owned energy conglomerate, to raise financing in Western capital markets. And it is penalising families close to Putin.
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The sanctions against the financial giants will cause immediate disruptions to Russia’s economy but are manageable over the longer term, analysts said. The technology restrictions, on the other hand, could cripple the ability of certain Russian industries to keep up.
“Putin chose this war, and now he and his country will bear the consequences,” Biden said in remarks from the East Room of the White House. “This is going to impose severe cost on the Russian economy, both immediately and over time.”
It was the second round of US sanctions imposed on Russia this week, following a more modest tranche that Biden announced Tuesday after Putin’s government recognised two Russia-backed insurgent enclaves in eastern Ukraine as independent states.
It was accompanied by a blizzard of sanctions from other countries announced Thursday. Britain adopted penalties largely in line with the US ones, with additions such as barring Aeroflot, A Russian airline, from operating in its territory. The European Union announced measures including bans on large bank deposits in the bloc and halts in many technological exports to Russia, including semiconductors. Japan and Australia also unveiled various sanctions.
One question in the days and weeks ahead is whether the United States and its European allies can stay in lockstep on Russia’s actions, as they say they will. Secretary of State Antony Blinken spoke Wednesday and Thursday with the European Union’s top diplomat, Josep Borrell Fontelles, a sign of the intense efforts to coordinate a joint response.
The new suite of sanctions from Washington includes some of the tougher penalties that US officials had said were being considered. There had been debate about whether constricting the operations of Russia’s biggest banks and other large companies would cause too much pain to ordinary Russians and to citizens in other countries.
Russia has a $1.5 trillion economy, the world’s 11th-largest. The global economy remains precarious at the start of the third year of the pandemic, and many governments are grappling with the highest inflation rates in decades. The price of crude oil has been surging this week because of Putin’s actions.
Russian companies have many cryptocurrency tools at their disposal to evade sanctions, including a so-called digital ruble and ransomware. (Sergey Ponomarev/The New York Times)
“I know this is hard, and that Americans are already hurting,” Biden said Thursday. “I will do everything in my power to limit the pain the American people are feeling at the gas pump. This is critical to me.”
But he added that Putin’s aggression could not go unanswered. “If it did, the consequences for America would be much worse,” he said. “America stands up to bullies. We stand up for freedom. This is who we are.”
Daleep Singh, the deputy national security adviser for international economics, told reporters that over time, the sanctions would “translate into higher inflation, higher interest rates, lower purchasing power, lower investment, lower productive capacity, lower growth and lower living standards in Russia.”
It is unclear whether the sanctions would compel Putin to halt his offensive, in which dozens of Ukrainian soldiers and civilians have already been killed, according to Ukrainian officials. If Putin pushes forward, then the sanctions will serve as a punishment, Blinken has said.
Some analysts are skeptical that the pain of the sanctions will break through to Putin, who has isolated himself during the pandemic, even from some of his close advisers.
Alexander Gabuev, a scholar at the Carnegie Moscow Center, said the Russian leader and the top officials around him had adopted a bunker mentality, understanding that their lives and wealth depend on their status at home, not within Western nations. They also see themselves as being on the front line of an ideological contest with the United States and its allies, he said.
Furthermore, the Russian government adopted fiscal policies to shield the country’s economy after the United States and Europe imposed sanctions in 2014 following Putin’s first invasion of Ukraine, and some top security officials and oligarchs have profited off the changes.
Edward Fishman, who oversaw sanctions policy at the State Department after Russia annexed Crimea in 2014, said he was surprised at the breadth of the new US sanctions beyond the financial and technology sectors. He said the measures limiting access to capital markets for Russian state-owned enterprises in industries as varied as mining, metals, telecommunications and transportation “cut across the commanding heights of the Russian economy.”
Even as Russia’s stock market plunged and the ruble fell to a record low against the dollar, the country may avoid all-out financial panic. Sergey Aleksashenko, a former first deputy chair of the Central Bank of Russia and former chair of Merrill Lynch Russia, said the financial measures were likely to inflict serious but ultimately bearable pain.
“They will be able to manage what is related to the financial sector,” Aleksashenko said. “Maybe it will be complicated, maybe it will be expensive — but it’s doable.”
More damaging, albeit over a longer term, Aleksashenko said, would be the new technology export controls.
The export controls imposed by the Commerce Department are aimed at severing the supply of advanced technologies to Russia, such as semiconductors, computers, lasers and telecommunications equipment.
The measures are expected to stop direct technological exports from US companies to Russia, potentially hobbling the Russian defense, aerospace and shipping industries, among others. They also go beyond previous sanctions issued by the US government by placing new export limits on products that are manufactured outside the United States but use US equipment or technology.
The administration said the measures, taken in concert with allies, would restrict more than $50 billion of key inputs to Russia. The country imported $247 billion of products in 2019, according to the World Bank.
“This is a massive set of technology controls,” said Emily Kilcrease, a senior fellow at the Center for a New American Security.
The biggest effect would be on Russia’s economy and its military capability over time, she said, as electronics, airplanes and ships wear out and Russian entities find themselves unable to buy new generations of technology.
“It is freezing Russia’s technology stock where it is today,” Kilcrease said. “You can’t upgrade it, you can’t replace it, you can’t improve it.” Or as Aleksashenko put it: “That is a problem you cannot solve, no matter how much you are ready to pay.”
Russia could look to China, a close partner, to try to fill in some of the technology gaps, but US officials say Chinese companies have not replicated the more advanced US products. Chinese firms also run the risk of US-imposed penalties if they are caught violating sanctions, as tech giants Huawei and ZTE were.
Sergei Guriev, a professor of economics at Sciences Po in Paris, said the sanctions would damage Russia’s economy but would not “result in a macroeconomic meltdown.” He pointed to Russia’s large sovereign wealth fund and the country’s enormous foreign currency reserves — $631 billion, the fourth-largest in the world.
“To destroy Russia’s macroeconomic stability,” he said, “the West would have to sanction Russia’s Central Bank and introduce an Iran-style embargo on energy exports,” steps that US officials have not proposed.
On Tuesday, the Biden administration announced it was imposing sanctions on two Russian banks, VEB and PSB, but those are policy banks with no retail operations in Russia.
The two named Thursday — Sberbank and VTB — are the biggest banks in Russia and have retail operations, and the pain will go deeper. The new sanctions bar US companies from interacting with Sberbank and prevent it from using US dollars in transactions, which is critical for global commerce.
The penalties on VTB are tougher. They are what Treasury officials call “full blocking sanctions,” meaning all of the bank’s assets in US financial institutions are frozen. It has been put on the harshest sanctions list, known as the SDN list, and foreign companies will most likely keep their distance from it for fear of being penalised by Washington.
The Treasury Department said VTB was among the largest institutions it had ever blocked. The agency also imposed full blocking sanctions on three other Russian financial institutions.
“That’s really going to be the test: Does ‘Fortress Russia’ hold up when you have assets that may be frozen overseas?” said Daniel Tannebaum, a partner at Oliver Wyman who advises banks on sanctions.
For now, US and European officials are not ready to cut off all Russian banks from SWIFT, the Belgian money transfer system used by more than 11,000 financial institutions worldwide. But a senior Biden administration official told reporters Thursday that such an action was not off the table. In Europe, governments differ on whether to untether Russia from SWIFT.
US officials for now do not plan big disruptions to Russia’s energy exports, which are the pillar of the country’s economy. Europe relies on the products, and world leaders do not want to drive oil and gas prices higher, although Germany did halt the Nord Stream 2 gas pipeline project this week.
European Union leaders met in Brussels on Thursday evening and pored over the details of proposed sanctions, which they insisted would deliver a heavy blow to the Russian economy.
But documents seen by The New York Times indicated that the bloc, which has close financial ties to Russia and shares borders with Ukraine, would probably defer several difficult decisions, despite pleas from Poland, the Netherlands and the Baltic States to take a hard-line approach.
“Enough of this cheap talking,” said Prime Minister Mateusz Morawiecki of Poland, which has already received Ukrainians fleeing the war. “We are buying as Europe, as the European Union, lots of Russian gas, lots of Russian oil. And President Putin is taking the money from us, Europeans. And he’s turning this into aggression.”
