How the West could punish Russia for invading Ukraine

The US, backed by Europe, has drawn up punitive sanctions to hit Moscow and its leaders in the event of an invasion of Ukraine. How comprehensive they will be and how effective in isolating Russia from the international financial community remains to be seen because the full details have yet to be disclosed. However, from authoritative briefings by US senior administration officials in recent weeks it is clear that the sanctions regime being contemplated by President Biden will be the harshest ever proposed by America against Russia. They will far exceed the sanctions imposed by President Obama when Russia annexed Crimea in 2014, and could even target Putin himself. The measures to be selected will have to take into account both the impact on the Russian economy and the consequential financial and energy-supply hit that could be suffered by the US and Europe. The commonest sanctions tool is to freeze assets and impose travel bans on individual Russian hierarchy figures. The US, Europe and the UK already have sanctions in place against a range of Russian individuals; not just for the annexing of Crimea but also for the fatal poisonings of ex-Russian spy Alexander Litvinenko in London in 2006 and the attempted Novichok nerve-agent poisoning of ex-intelligence officer/double agent Sergei Skripal and his daughter in Salisbury in 2018. Russia has endured sanctions for so long that the Kremlin will have learned ways of softening the blow. They know how the game is played, as one expert put it. So the sanctions now on Biden’s list are expected to include: *Export controls: This would mean the denial of exports from the US involving sophisticated technologies that American companies design and which are essential for Russia’s strategic ambitions and cannot be easily replaced from any other country. This could include crucial components related to artificial intelligence, quantum computing, aerospace, defence and other technologies which Putin needs to industrialise the Russian economy. The White House has already warned the US microchip industry to be prepared for new restrictions on exports to Russia. *Sweeping sanctions on Russian government and military officials, as well as banks and energy companies: More than 700 Russian individuals are still under US sanctions over the annexation of Crimea. But the new measures are likely to target the Kremlin elite including the billionaire oligarchs who amassed wealth during the Russian privatisation of state industries after the end of the Cold War. The UK could take action against the billionaires who invested widely in property in London. Banks to be targeted could include the state-backed Russian direct investment fund which is crucial to investing in Russia’s leading companies. *Moscow cut out of the SWIFT international financial system used by banks around the world which would prevent Russia from taking part in global finance transactions. This would be a heavyweight punishment which could have unpredictable consequences. It was a sanction considered but not used after the Crimea annexation. Russia has tried to set up its own system called SPFS but with only marginal success. *Access to dollars and ban on Russian bonds: Russia could be blocked from access to the dollar which would make life difficult for all Russian companies needing to benefit from the US banking system. US financial institutions are already prohibited from buying Russian government bonds but further action could be taken to restrict any dealings with Russia’s bond market. *The Nord Stream 2 natural gas pipeline between Russia and Germany: The pipeline is completed but not yet switched on. Biden has indicated with unenthusiastic support by Germany, that the pipeline will remain shut down. The danger is that Russia would retaliate by “weaponising” its crude oil and gas supplies to Europe which would have a huge impact on energy prices and could lead to widespread shortages. However, oil and gas export income represent about half of Russia’s federal budget revenues. So any restrictions on energy supplies to Europe would also hit the Russian economy. The US has been seeking to identify extra volumes of non-Russian natural gas from other parts of the world, such as North Africa, the Middle East, Asia and the US itself. *Purtin’s wealth: This is the most controversial sanctions option and possibly the most challenging. Putin’s wealth and where his money is held are two unknowns. The US Treasury has a unit capable of tracking hidden riches of targeted individuals, whether terrorists, members of organised crime groups or leaders of countries regarded as adversaries. The Russian government has declared that Putin had a take-home salary of $131,900 in 2020 and has assets that include a 77 square metre apartment, an 18 square metre garage, two vintage Volga cars, a Lada Niva SUV and a trailer. No mention has been made about a palace on the Black Sea which Putin’s jailed opposition leader Alexei Navalny claims is owned by the Russian president. Nor the alleged $200 billion fortune Putin is supposed to have accumulated, according to one estimate provided to the US senate five years ago. Whatever Putin’s real wealth, Biden has said he is considering possible action against the Russian leader’s personal assets. But following the money trails could lead to a wall of mirrors.