Explainer-How Western sanctions might target Russia

January 26, 2022

By Karin Strohecker

(Reuters) – Western countries have threatened to impose new financial and economic sanctions on Russia if it invades Ukraine.

Russia, which denies planning an invasion after massing troops near Ukraine, has been under Western sanctions since its 2014 annexation of Crimea from Ukraine.

More punitive measures were added after a former Russian spy was poisoned in Britain in 2018 – Russia denied any involvement – and following an investigation into allegations, denied by Moscow, of Russian meddling in the 2016 U.S. presidential election won by Donald Trump.

Here are some ways further sanctions could target Russia:


The White House has told the U.S. chip industry to be ready for new restrictions on exports to Russia https://www.reuters.com/business/white-house-tells-chip-industry-be-ready-potential-russia-export-curbs-2022-01-19 if Moscow attacks Ukraine, including potentially blocking Russia’s access to global electronics supplies.

Similar measures were deployed during the Cold War, when technology sanctions kept the Soviet Union technologically backward and crimped economic growth.


Sanctioning individuals via asset freezes and travel bans is a commonly used tool. The United States, the European Union and Britain already have sanctions in place against a number of Russian individuals.

A bill unveiled by U.S. Senate Democrats foresees sweeping sanctions on top Russian government and military officials, including Putin, and President Joe Biden has said he would be ready to consider personal sanctions on the Russian president.

Moscow has said any move to impose sanctions on Putin himself would not harm the Russian president personally but would prove “politically destructive”.


Some smaller Russian state-owned banks are already under sanctions. Washington imposed curbs on Bank Rossiya https://www.reuters.com/article/us-usa-sanctions-russia-idUSKBN1492AH in 2014 for its close ties to Kremlin officials.

Options now would include toughening the existing, relatively narrow sanctions against state banks or widening the list of financial institutions subject to curbs, possibly to include private banks.

Russia’s large banks are deeply integrated into the global financial system, meaning sanctions could be felt far beyond its borders. Data from the Bank of International Settlements (BIS) shows that European lenders https://www.reuters.com/markets/europe/how-russian-ukraine-conflict-might-hit-global-markets-2022-01-25 hold the lion’s share of the nearly $30 billion in foreign banks’ exposure to Russia.

Sanctions could be imposed on smaller and specialised banks but would be likely to have less impact on Russia’s economy.

Washington could also target the state-backed Russian Direct Investment Fund.


The United States and the EU https://www.reuters.com/article/uk-ukraine-crisis-eu-sanctions-idUKKBN0H02B420140905 already have sanctions in place on Russia’s energy and defence sectors, with state-owned gas company Gazprom, its oil arm Gazpromneft and oil producers Lukoil, Rosneft and Surgutneftegaz facing various types of curbs on exports/imports and debt-raising.

Sanctions could be widened and deepened, with one possible option being to prevent companies settling in U.S. dollars.

Europe’s dependence on Russian energy supplies weakens the West’s hand when considering sanctions in this sector. Berlin has signalled it might be ready to take punitive measures over Nord Stream 2 https://www.reuters.com/world/europe/germany-signals-it-could-halt-gas-pipeline-if-russia-invades-ukraine-2022-01-18, a recently completed pipeline from Russia to Germany that is yet to win regulatory approval.


One of the harshest measures would be to disconnect the Russian financial system from SWIFT, which handles international financial transfers and is used by more than 11,000 financial institutions in over 200 countries.

In 2012, SWIFT disconnected Iranian banks as international sanctions tightened https://www.reuters.com/article/usa-iran-sanctions-swift-idUSFWN1XK0YW against Tehran over its nuclear programme. Iran lost half its oil export revenues and 30% of foreign trade, the Carnegie Moscow Center think tank said.

Among Western countries, the United States and Germany would stand to lose the most from such a move, as their banks are the most frequent SWIFT users with Russian banks, said Maria Shagina at the Carnegie Moscow Center.

Calls to cut Russia’s SWIFT access were mooted in 2014 when Moscow annexed Crimea, prompting Moscow to develop an alternative messaging system, SPFS.

The number of messages sent via SPFS was about one-fifth of Russian internal traffic in 2020, according to the central bank, which aims to increase this to 30% in 2023. However, SPFS has struggled to establish itself in international transactions.


Access to Russian bonds has become increasingly restricted and sanctions could be tightened further, with a ban on secondary market trading of both new Eurobond and new Russian rouble bonds known as OFZs floated as an option.

In April 2021, Biden barred U.S. investors from buying new Russian rouble bonds https://www.reuters.com/business/finance/exclusive-biden-bar-us-banks-issuing-russian-sovereign-debt-2021-04-15 over the accusations of election meddling.

Sanctions imposed in 2015 made future Russian dollar debt ineligible for many investors and key indexes. Those measures have cut Russia’s external debt by 33% since early 2014 — from $733 billion to $489 billion in the third quarter of 2021. Lower debt improves a country’s balance sheet on the surface, but deprives it of financing sources that could contribute to economic growth and development.

(Reporting by Karin Strohecker in London and Andrey Ostroukh in Moscow; Editing by Timothy Heritage)

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