The pressure on Russia continues to build. The U.S. Treasury Department recently unveiled new sanctions targeting Gazprombank, one of Russia’s major financial institutions. This move, part of a broader set of economic actions aimed at weakening Russia’s war efforts, comes as the U.S. accelerates its support for Ukraine. To understand the significance of these measures, we consulted experts on sanctions to break down what’s behind the decision and what we can expect next.
1. What exactly did the U.S. government do with these new sanctions?
The U.S. has escalated its economic pressure on Russia by imposing full blocking sanctions on 118 entities and individuals, including Gazprombank, the largest Russian bank that had previously avoided sanctions. The U.S. Treasury’s Office of Foreign Assets Control (OFAC) also issued a warning about the risks involved in associating with Russia’s System for Transfer of Financial Messages (SPFS), which is essentially Russia’s alternative to the global SWIFT banking system.
- Daniel Fried, a former U.S. State Department coordinator for sanctions policy, explains that today’s move aligns the U.S. with its Western allies, such as the UK, Australia, and Canada, who had already sanctioned Gazprombank. Although this doesn’t directly target the oil and gas sector, it will likely disrupt payments related to Russian oil sales. For a long time, the U.S. hesitated to add Gazprombank to the Specially Designated Nationals (SDN) list due to concerns over potentially spiking oil prices.
- Kimberly Donovan, director of the Economic Statecraft Initiative at the Atlantic Council, adds that this sanction is a significant step but stops short of a full financial embargo against the Russian banking system, which some experts have called for.
2. How does this action fit into the broader U.S. sanctions approach since 2022?
This latest round of sanctions is a logical progression from the financial penalties imposed after Russia’s first invasion of Ukraine in 2014, which intensified after the full-scale invasion in February 2022. While it doesn’t represent a total financial blockade of Russia’s banking system, it brings the U.S. much closer to that goal.
- Daniel Fried notes that the sanctions are intensifying, but the U.S. has not fully severed financial ties with the Russian banking system.
3. What role does this play in President Biden’s strategy on the war as he nears the end of his term?
As President Biden’s term progresses, the administration is swiftly moving to impose additional sanctions alongside military aid to Ukraine. This includes sending anti-personnel land mines and lifting restrictions on the use of advanced missile systems like ATACMS by Ukraine.
- Daniel Fried suggests that these actions reflect a broader strategy by the Biden administration to exert more pressure on Russia while bolstering Ukraine’s defense capabilities.
4. What does this mean for other countries doing business with Russia?
The sanctions imposed on Gazprombank carry the potential for secondary sanctions, meaning foreign financial institutions that continue to work with Gazprombank could face penalties from the U.S. government. The announcement is likely to send ripples through both the financial and oil sectors, as companies reconsider their ties to Russia and assess the risks of continuing business, particularly regarding Russian oil.
- Kimberly Donovan warns that financial institutions and oil exporters/importers must carefully evaluate the potential consequences of doing business with Russia, especially as the U.S. moves to clamp down on Russian financial activity.
5. What impact will these sanctions have on Russia’s ability to continue the war?
The new sanctions will create more “friction” for the Russian economy, making it harder to conduct financial transactions, particularly for oil sales. Russia might resort to using less widely accepted currencies or even barter systems to circumvent these sanctions. However, while this will complicate Russia’s economic activity, these measures alone may not deal a decisive blow to the Russian economy.
- Daniel Fried notes that these sanctions, while significant, are unlikely to cripple Russia’s economy by themselves. He emphasizes that further sanctions may be needed, given the ongoing nature of Russia’s attacks on Ukraine. He advises to “stay tuned” as more measures could follow.