Why the US is weighing tougher sanctions against Russia over Ukraine

Since 2014, the US has imposed travel bans, asset freezes and economic restrictions on hundreds of Russian individuals and companies, part of a multinational effort to punish President Vladimir Putin’s government for alleged troublemaking beyond its borders and online. With Russia again massing troops and military equipment near the border with Ukraine, the US and its allies are weighing further sanctions in case the conflict escalates.  

WHAT US SANCTIONS ARE IN PLACE AGAINST RUSSIA?

More people and companies in Russia have been hit by US sanctions in the last decade than any country other than Iran. Some, including business magnates and close political allies of Putin, are banned from doing business with US companies and individuals and making any transactions in dollars. So-called sectoral sanctions against corporate titans such as Rosneft, Gazprom Group, Sberbank and VTB Group limit their ability to do business abroad. Restrictions added by President Joe Biden stop US financial institutions from participating in the primary market for Russian sovereign debt. 

WHAT SANCTIONS MAY BE COMING NEXT?

Washington and its allies are threatening more sweeping penalties if Putin orders troops into Ukraine. Those include potential restrictions on Russia’s ability to convert rubles for foreign currencies and additional sanctions on banks, key individuals (including Putin himself) and the multibillion-dollar Nord Stream 2 gas pipeline from Russia to Germany. Proposed export controls could target everything from aircraft avionics and machine tools to gaming consoles, TVs and smartphones. A more radical option would be to unplug Russia from the Swift global payments system.

However, it’s proving hard to agree on the breadth and severity of the penalties. European governments worry that stopping Moscow accessing the foreign exchange market would disrupt imports of Russian gas just as the region endures its worst energy crunch since the 1970s, and some have asked for exemptions from particular measures. There’s also disagreement on the kind of Russian action that would trigger more sanctions. Any move against Kyiv may not come in the form of a direct and lasting offensive. If Russia launched a massive cyberattack or tried to destabilize Ukraine’s government, it might be hard to prove that Moscow is responsible. Putin says there is no plan to invade Ukraine.

WHY WERE THE EXISTING SANCTIONS IMPOSED

They were ordered by president Barack Obama after Russia annexed the Ukrainian peninsula of Crimea in 2014 and supported a separatist conflict in eastern Ukraine. More were added after US intelligence agencies concluded that Moscow interfered in the 2016 presidential election, won by Donald Trump. In 2018, under Trump, another round of measures in response to Russia’s “malign activity around the globe” hit Oleg Deripaska’s United Co. Rusal hardest, limiting for a time its access to the US$140 billion global aluminum industry. 

Other US sanctions were aimed at punishing Putin’s government for a 2018 nerve-agent attack on former double agent Sergei Skripal and his daughter in the UK. There are sanctions linked to deals with Syria and North Korea, and sanctions against companies involved in building Nord Stream 2. Biden, upon taking office in 2021, carried out a promise to impose new sanctions but said he chose to make them “proportionate” in hopes of limiting the further worsening of the relationship.

WHY DID BIDEN ADD TO THE SANCTIONS?

The sanctions imposed in March and April 2021 followed a review Biden ordered on his first full day in office into four key areas concerning Russia: Interference in the 2020 election, reports of Russian bounties on US soldiers in Afghanistan, the hacking of Texas-based software supplier SolarWinds and the poisoning and jailing of opposition leader Alexey Navalny. 

WHO ELSE HAS SANCTIONS ON RUSSIA?

The European Union (EU) slapped sanctions on Russia’s financial, energy and defense sectors in response to the annexation of Crimea in a bid to push Putin into a more conciliatory stance over the conflict in Ukraine. Japan joined in those sanctions. The EU also blacklisted six Putin allies as punishment for the attempted murder of Navalny. The Kremlin denies involvement. The UK has sanctioned Russia in conjunction with its European allies to ensure the restrictions would continue to operate effectively after Brexit. 

WHAT'S BEEN THE IMPACT?

The effectiveness of sanctions so far is a matter of debate. They “can inflict some pain” and be “a long-term drag on investment and trade,” wrote Bloomberg Economics analyst Scott Johnson. Some, for instance, imposed travel restrictions and asset freezes on individuals unlikely to travel to America or have assets in US accounts.

The Congressional Research Service, in a report updated in 2020, said that sanctions “have had a negative but relatively modest impact on Russia’s growth” and that it’s “difficult to determine” whether sanctions actually influence Russia’s behavior. Russia, for its part, maintains it can survive the sanctions. As Johnson and the Congressional Research Service both note, the US is constrained by worries over unintended collateral damage. 

WHAT SORT OF COLLATERAL DAMAGE?

The April 2018 sanctions targeting Rusal disrupted the global supply chain for aluminum and briefly sent prices soaring by 30 per cent. That affected aluminum consumers in Europe, the US and Asia including car manufacturers, soda-can makers, the world’s biggest miners and big banks that finance the aluminum trade.

The sanctions on Rusal were lifted in late 2018 after Deripaska agreed to reduce his ownership and relinquish control. Blocking US investors from buying ruble-denominated Russian government debt had long been seen as the “nuclear option” in financial markets, where the bonds, known as OFZs, are a popular investment. But restricting the limits to new debt sales, and not those trading on secondary markets - as Biden did when adding banking sanctions in April 2021 - blunted the impact. 

IS THERE A BETTER WAY?

Sanctions “are not an end in themselves and should not be treated as such,” writes Steven Pifer, a former State Department official now with the Brookings Institution. He urged the Biden administration to embed sanctions in a broader US policy toward Russia, link them to specific policy goals understood by the Kremlin, and be willing to reverse sanctions “if Russia ceases the offending action”.