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The logic behind the US sanctions

By, Washington
Feb 26, 2022 04:40 AM IST

Given the clear political stance, both in the administration and across party lines in the US, that American troops would not be sent to Ukraine to fight Russia, sanctions emerged as the most preferred alternative to counter Russia.

With the stated objective of ensuring Russia’s aggression in Ukraine is a “strategic failure”, the US has announced what it called the “most impactful and significant sanctions” it has ever undertaken in terms of financial consequences, and “an expansive and unprecedented set of export restrictions” developed in “historically close coordination” with its allies.

US President Joe Biden.(Bloomberg)
US President Joe Biden.(Bloomberg)

Following up on President Joe Biden’s announcement of the sanctions on Thursday, the administration’s key architect of the sanctions regime, Daleep Singh, deputy national security advisor for international economics, said that the administration had warned that if Vladimir Putin invaded Ukraine, there would be an immediate and profound cost to Russian financial system, economy, technological base and strategic position.

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“Strategic success in the 21st century is not about a physical land grab of territory. That’s what Putin has done. In this century, strategic power is increasingly measured and exercised by economic strength, technological sophistication and your story – who you are, what your values are, can you attract ideas and talent and goodwill. On each of these measures, this would be a failure for Russia,” Singh said.

He added that the economic sanctions, put together, would translate into “higher inflation, higher interest rates, lower purchasing power, lower investment, lower productive capacity, lower growth, and lower living standards in Russia”, while export restrictions would “impair Putin’s military capabilities and will also deny exports across Russia to sensitive, cutting-edge technology, primarily targeting Russia’s defence, aerospace, and maritime sectors”.

Given the clear political stance, both in the administration and across party lines in the US, that American troops would not be sent to Ukraine to fight Russia, sanctions emerged as the most preferred alternative to counter Russia.

Three challenges

But the US, while designing the sanctions, has had to keep three factors in mind.

One, sanctions have the possibility of triggering a spike in energy prices — which would also affect American consumers, already grappling with inflation that has posed a political challenge to Biden domestically. Biden has acknowledged that there will be a cost for American people, but emphasised that his aim has been to minimise the cost for America and its allies, while maximising the impact on the Russian economy.

Also read | China refuses to call Russian attack on Ukraine an ‘invasion’, blames US

Singh said, “To be clear, our sanctions are not designed to cause any disruption to the current flow of energy from Russia to the world. We have carved out energy payments on a time-bound basis to allow for an orderly transition of these flows away from sanctioned institutions, and we have provided other licenses to provide for an orderly wind-down of business.”

Two, the US has designed the sanctions with its allies in Europe — but this has meant that together, they have not been able to agree on some measures which were on the table, most starkly reflected in absence of any announcement to cut off Russian banks from accessing the SWIFT system. Banks use this to communicate transfers of money and other instructions and the system is the backbone of cross-border transactions of all sorts.

In response to a question on SWIFT, Singh said that they had followed a set of principles — sanctions had to be impactful; they had to be responsible to avoid the perception of “targeting the average Russian civilian and unwanted spillovers back to the US and global economy; they had to be coordinated and so it has been calibrated to ensure the US moves in “lockstep with allies and partners”; they had to be flexible; and they had to be sustainable for impact over the long term.

And finally, the US had, so far, hoped that the threat of sanctions would, to some extent, deter Russian aggression — Republicans in the House as well as Ukraine had been pushing for sanctions prior to the invasion while the administration wanted to keep it on hold in order to keep it as a mechanism that could potentially deter Russia. The fact that the invasion happened despite the threat of sanctions has led to questions about the efficacy of the strategy, though the Biden administration has insisted that they had never expected sanctions to prevent aggression but wanted to present a choice to Russia — and it was a choice for Putin to make. This has generated political pressure now on the administration to show the effectiveness of the sanctions, even as Biden and his team has emphasised that these measures will have an impact over time.

The US has also held back from sanctioning Putin personally — even as it has targeted his close aides, perhaps to keep a diplomatic door open.

Check full Russian-Ukraine crisis coverage here

Nature of sanctions

Within these constraints and framework, the US announced the following set of sanctions against Russia on Thursday.

One, the US has now targeted all of Russia’s ten top financial institutions. It imposed sanctions on two of Russia’s largest financial institutions, Sberbank and VTB. A White House factsheet said that Thursday’s sanctions would severe Russia’s largest financial institution, Sberbank’s connection to the US financial system and restrict its access to transactions in dollar; for VTB, Singh said that US was freezing all of its assets touching the US financial system and it would prohibit any US persons from doing any business with the bank. “We will also freeze the assets of and prohibit any business dealings with three additional Russian banks with combined assets of over $70 billion.”

Two, the US has imposed new debt and equity restrictions on 13 of the most critical major Russian enterprises and entities. The factsheet said that these entities, including companies critical to the Russian economy with estimated assets of nearly $1.4 trillion, would not be able to raise money through the US market — “a key source of capital and revenue generation, which limits the Kremlin’s ability to raise money for its activity”.

Three, the US has imposed additional sanctions what it calls Russian elites and their family members; many of them are significant aides of Putin.

Four, to send a message to Belarus, which has supported Russia and provided the staging ground for the attack on Ukraine from the north, the US has sanctioned 24 Belarusian individuals and entities, two significant Belarusian state-owned banks, nine defence firms, and seven regime-connected official and elites.

Five, the US has imposed what it calls sweeping restrictions on the Russian military. The White House factsheet said that exports of nearly all US items and items produced in foreign countries using certain US-origin software, technology, or equipment will be restricted to targeted military end users. “These comprehensive restrictions apply to the Russian Ministry of Defense, including the Armed Forces of Russia, wherever located.”

And finally, the US has sought to deprive Russia of cutting edge technology, “critical to a diversified economy and Putin’s ability to project power”. This, the factsheet outlined, included denial of exports of sensitive technology, primarily targeting the Russian defence, aviation, and maritime sectors. “In addition to sweeping restrictions on the Russian-defence sector, the US government will impose Russia-wide restrictions on sensitive U.S. technologies produced in foreign countries using U.S.-origin software, technology, or equipment. This includes Russia-wide restrictions on semiconductors, telecommunication, encryption security, lasers, sensors, navigation, avionics and maritime technologies. These severe and sustained controls will cut off Russia’s access to cutting edge technology.”

In international relations literature, the efficacy of sanctions has been widely debated — with mixed views on whether it is able to change State behaviour. In this case, the US has shifted from using the threat of sanctions with the hope that it would deter Russian actions to actual use of sanctions with the object of inflicting crippling costs on the Russian economy, which, in turn, would undermine Putin’s position and set a precedent. But whether this strategy succeeds, and how much the US and the rest of the global economy suffers in the process too, is to be seen.

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  • ABOUT THE AUTHOR
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    Prashant Jha is the Washington DC-based US correspondent of Hindustan Times. He is also the editor of HT Premium. Jha has earlier served as editor-views and national political editor/bureau chief of the paper. He is the author of How the BJP Wins: Inside India's Greatest Election Machine and Battles of the New Republic: A Contemporary History of Nepal.

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