What would US sanctions look like for Russia’s economy?

The Biden administration is threatening full-blocking sanctions, which cuts off access to the network on which the US dollar is traded.

What’s going on between Russia and Ukraine, again?

• Over the past year, Russia has moved nearly 100,000 troops to the Ukrainian and Russian border, which worries experts that Russia is looking to invade Ukraine again.

• According to Pavel Slunkin, a visiting fellow at the European Council on Foreign Relations, Russian President Vladimir Putin is looking to return to Soviet-era Russia (with Ukraine in it).

• So now, Russia is doing everything possible to prevent Ukraine from becoming a North Atlantic Treaty Organization (NATO) country, which would mean several other countries could help defend Ukraine if it came under attack.

• NATO members like the United States and European nations are now trying to come to a solution with Russia. They’ve publicly said that they would prefer a diplomatic solution but are ready to fight in a military sense and an economical one (i.e., sanctions) if need be.

What kind of sanctions?

• Well, according to the Biden administration, the sanctions would have “severe and overwhelming costs on Russia’s economy.”

• The administration is threatening full-blocking sanctions, which cuts off access to the network on which the US dollar is traded.

• And they’re talking about doing these sanctions in coordination with other countries to target specific sectors of the economy that are deemed critical to Russia.

• This is in contrast to previous sanctions imposed on Russia after the annexation of Crimea in 2014, which pale in comparison to these new sanctions being proposed.

• All in all, these kinds of sanctions would move Russia to the list of countries that have to work around American sanctions and are also completely cut off from the American economy, like Iran and North Korea.

How would Russia handle it?

• Since 2014, when those relatively lighter sanctions were imposed, Russia has been trying to limit the potential damage additional American sanctions would cause.

• For example, last year, the Russian Finance Ministry said it would start cutting the number of US dollar assets in a part of oil revenues from 35% down to zero.

• But, the sanctions imposed in 2014 also have hurt the European Union (EU) quite a bit because the EU and Russia are big trade partners.

• So, sanctions on Russia could lead to the economic hurt of America’s allies as well.

• Some are saying that there’s also a longer-term possibility that American sanctions would cause the development of a Russian central bank digital currency to speed up since a digital currency would be able to bypass these sanctions.

• Others have also warned of potential pushback over sanctions, citing a possibility of retaliatory Russian cyberattacks.

Are there any other downsides for the US?

• In 2021, the US imported an average of 202,000 barrels per day of crude oil from Russia each month, which is the highest that number has been in 11 years.

• But the US isn’t the only one concerned about oil prices inflating with sanctions, nor is it the one that would be the most heavily affected.

• See, most of Europe’s oil comes from Russia. In fact, Russia is the EU’s top oil provider, not to mention it ranks number five of countries with which the EU trades.

• So, part of the calculation here on sanctions isn’t just whether or not it will hurt Russia, but also whether or not it will hurt the EU, which is a bit more delicate.

• This is amid a supply chain crisis and shortages, which have already sent inflation to record highs worldwide.

• “Were sanctions to be placed on Russia’s energy exports or were Russia to use gas exports as a tool for leverage, European natural gas prices would probably soar,” said Capital Economics analyst William Jackson. “We think they would far exceed the peak reached last year.”

What’s next?

• The ball is in Russia’s court right now because it seems that the US and fellow EU allies have made promises of military defense and sanctions clear.

• Moving forward, the main thing to watch out for will be how the negotiations go in Geneva between the US and Russia. On top of this, Biden is meeting with European leaders on Monday to discuss the situation.

• There is a chance that a peaceful solution is brokered, that Russia doesn’t invade Ukraine and that no sanctions are put on the country.

• But, it’s also possible that there is an escalation of the situation, Russia invades and annexes Ukraine and the US imposes the heaviest sanctions in its toolbox on Russia.

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