Biden imposes wide-ranging sanctions on Russia over Putin’s war in Ukraine

WASHINGTON – President Biden, who has vowed to turn Russian President Vladimir Putin into a “pariah,” announced tough new sanctions on Thursday aimed at isolating Russia’s largest banks and some members of the oligarchy from much of the global financial system and preventing the country from importing. American technology is critical to its defense, aerospace, and naval industries.

The package revealed by the US government is expected to spread across businesses and households in Russia, where concern over Putin’s all-out invasion of Ukraine has already begun. The country’s stock market plunged more than 30 percent on Thursday, wiping out a massive amount of wealth.

The new US sanctions include harsh sanctions against Russia’s two largest financial institutions, which together account for more than half of the country’s banking assets.

American officials, too excluding export American technology that is important to Russia, and which could endanger industries there. In addition, the United States will limit the ability of 13 major Russian companies, including Gazprom, the state-owned energy group, to raise financing in Western capital markets. He punishes families close to Putin.

Analysts said that the sanctions against the financial giants will lead to immediate disruptions in the Russian economy, but they can be controlled in the long term. On the other hand, technological limitations can cripple the ability of some Russian industries to keep pace with developments.

“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 will impose a heavy cost on the Russian economy, both immediately and over time.”

This was the second round of US sanctions against Russia this week, after a more modest segment like Biden announced on tuesday After Mr. Putin’s government recognized two Russian-backed rebel enclaves in eastern Ukraine as independent states.

Britain announced on Thursday its second round of sanctions. It was largely in line with American goals, with some additional goals; For example, London banned the Russian airline Aeroflot from operating in Britain. The European Union is discussing the next round of sanctions after it imposed an initial set on Wednesday.

One question in the coming days and weeks is whether the United States and its European allies can continue to take steps toward Russia’s actions, as they claim. Secretary of State Anthony J. Blinken on Wednesday and Thursday with the European Union’s chief diplomat, Josep Borrell Fontel, referring to the intensified efforts to coordinate a joint response.

The new set of sanctions imposed by Washington includes some of the tougher ones that US officials have said are under consideration. There has been controversy over whether restricting the operations of Russia’s largest banks and other large corporations would cause so much pain to ordinary Russians and citizens of other countries.

Russia has a $1.5 trillion economy, and it ranks 11th in the world. The global economy remains unstable at the start of the third year of the pandemic, and many governments are grappling with the highest inflation rates in decades. Crude oil prices rose this week due to Putin’s actions.

“I know this is hard, and Americans are really getting hurt,” Biden said Thursday. I will do everything in my power to reduce the pain the American people feel at the gas pump. This is very important to me.”

But he added that Mr. Putin’s aggression could not go unanswered. “If that happens, the consequences for America will be much worse,” he said. America stands up to bullies. We stand for freedom. this is us.”

Over time, the sanctions will translate into higher inflation, higher interest rates, lower purchasing power, lower investment, lower production capacity, lower growth and lower living standards in Russia, Dalip Singh, deputy national security adviser for international economics, told reporters. . “

But it is unclear whether the sanctions will force Putin to halt his offensive, which has already killed dozens of Ukrainian soldiers and civilians, according to Ukrainian officials. If he pushes Putin forward, Mr. Blinken said, sanctions will be a punishment.

Some analysts doubt that the pain of the sanctions will pass on to Mr. Putin, who has isolated himself during the pandemic, even from some of his close advisers.

Alexander Gabov, a scholar at the Carnegie Moscow Center, said the Russian leader and senior officials around him adopted a bunker mentality, realizing that their lives and wealth depended on their standing at home, not within Western countries. They also see themselves on the front line in an ideological confrontation with the United States and its allies, he said.

Moreover, the Russian government adopted fiscal policies to protect the country’s economy after the United States and Europe imposed sanctions in 2014 following Mr. Putin’s first invasion of Ukraine, and some senior security officials and oligarchs have benefited from these changes.

Edward Fishman, who oversaw sanctions policy at the State Department after Russia annexed Crimea in 2014, said he was surprised by the breadth of new US sanctions beyond the financial and technology sectors. He said measures that limit Russian state-owned companies’ access to capital markets in industries as diverse as mining, metals, telecommunications and transportation “go beyond the heights of the Russian economy.”

Even with the Russian stock market plummeting and the ruble plunging to a record low against the dollar, the country may avoid an all-out financial panic. The financial measures are likely to cause serious but ultimately tolerable pain, said Sergei Aleksachenko, former first deputy head of the Russian Central Bank and former head of Merrill Lynch Russia.

“They will be able to manage in terms of the financial sector,” said Mr. Aleksachenko. “Maybe it’s going to be complicated, maybe it’s expensive — but it’s possible.”

More damaging, albeit in the long term, Aleksachenko said, are new technology export controls.

Export controls imposed by the Ministry of Commerce are aimed at cutting off Russia’s supply of advanced technologies, such as semiconductors, computers, lasers and communications equipment.

Actions are expected to stop Direct technology exports from American companies to Russia, which could hinder Russia’s defense, aerospace and shipping industries, among other things. They also go further Previous penalties issued by the US government by setting new export limits on products that are manufactured outside the US but use US equipment or technology.

The measures, taken in coordination with allies, will restrict more than $50 billion in key inputs to Russia, the administration said. The country imported $247 billion in products in 2019, according to the World Bank.

“This is a huge set of technology controls,” said Emily Kilkris, a senior fellow at the Center for a New American Security.

She said the biggest impact would be on Russia’s economy and military capacity over time, as electronics, planes and ships erode and Russian entities find themselves unable to purchase new generations of technology.

“It freezes the Russian tech stock where it is today,” Kilkris said. “You can’t upgrade it, you can’t replace it, you can’t improve it.” Or, as Mr. Aleksachenko said: “This is a problem that you cannot solve, no matter how much you are willing to pay.”

Russia can look to China, close partner, to try to plug some of the technology gaps, but US officials say Chinese companies have not replicated more advanced US products. Chinese companies are also at risk of US sanctions if caught violating sanctions, such as tech giants Huawei And the ZTE she was.

Sergei Guriev, professor of economics at the Institute of Political Sciences in Paris, said the sanctions would hurt the Russian economy but would not “lead to a macroeconomic collapse”. He noted Russia’s huge sovereign wealth fund and the country’s huge foreign exchange reserves – $631 billion, the fourth largest in the world.

“To destroy Russia’s macroeconomic stability, the West would have to impose sanctions on the Russian Central Bank and impose an Iran-style embargo on energy exports,” he said, steps US officials have not suggested.

On Tuesday, the Biden administration announced that it would impose sanctions on two Russian banks, VEB and PSB, but they are political banks that do not have retail operations in Russia.

The two named on Thursday – Sberbank and VTB – are Russia’s largest banks with retail operations, and the pain will only deepen. New sanctions prevent US companies from interacting with Sberbank and prevent them from using US dollars in transactions, which is critical for global trade.

The penalties for VTB are more stringent. They’re what Treasury officials call “full embargo sanctions,” meaning a freeze on all of the bank’s assets in US financial institutions. It has been put on a list of the most draconian sanctions, known as the SDN List, and foreign companies are likely to shy away from it for fear of retribution from Washington.

The Treasury said VTB was among the largest institutions it had ever withheld. The agency also imposed full embargo sanctions on three other Russian financial institutions.

“This will really be the test: Does Fortress Russia crash when you have assets that may be frozen abroad?” said Daniel Tannebaum, a partner at Oliver Wyman who advises banks on sanctions.

At the moment, US and European officials are not ready to isolate all Russian banks from it Swift, is the Belgian money transfer system used by more than 11,000 financial institutions worldwide. But a senior Biden administration official told reporters on Thursday that such action was not on the table. In Europe, governments differ on whether to separate Russia from Swift.

US officials are not currently planning to cause major disruptions to Russia’s energy exports, which are the mainstay of the country’s economy. Europe is dependent on products, and world leaders do not want to raise oil and gas prices, although Germany has stopped Nord Stream 2 Gas pipeline project this week.

European Union leaders met in Brussels on Thursday evening and studied the details of proposed sanctions that they insist would deal a severe blow to the Russian economy.

But documents seen by the New York Times indicated that the bloc, which has close financial ties with Russia and shares a border with Ukraine, is likely to delay many tough decisions, despite calls from Poland, the Netherlands and the Baltic states for a hard line. approach.

“Enough cheap talk,” said Polish Prime Minister Mateusz Morawiecki, who has already received Ukrainians fleeing the war. He added, “Like Europe and the European Union, we buy a lot of Russian gas and a lot of Russian oil. President Putin takes money from us Europeans. He turns this into aggression.”

Matina Stevis Gridnev Contributed to reporting from Brussels, and Alan Rabeport from Washington.