Russia Sanctions, With Teeth

The economic sanctions imposed by the European Union and United States against Russia for its invasion of Ukraine were executed within days – and, critically, include Russia’s central bank and two of its largest state banks.

This is according to a Wall Street Journal editorial,“The West’s Economic War Plan Against Putin,” by Tunku Varadarajan, a fellow at the American Enterprise Institute and Columbia University’s Center on Capitalism and Society.

The United States and Japan have also stripped Russia of its important “most favored nation” trade status in the World Trade Organization. This means they could impose tariffs of 35% or more on Russian goods, quotas or outright ban them.

The Putin Stigma

Piled on top of these official sanctions are the hundreds of major Western and multinational companies—including banks, insurers and credit card companies, American Express, Mastercard and Visa, notwithstanding—exiting Russia, post haste.

Ratings agencies say that any day now, Russia could default government bonds, with billions of dollars owed to foreigners.

As the world watches in horror at the bombing and devastation of Ukraine, and at the forced exodus of millions of its people, primarily women and children, it has become “honestly shameful to be seen as paying [Russia President Vladimir] Putin right now,” says Edward Fishman, a fellow at the think tanks American Council and Center for New American Security

In direct contrast, in 2014, when Russia attacked Crimea, the sanctions took four months to take effect, and they were not bolstered by the outrage of the world.

Since Putin’s financial house was so exposed and ripe for the taking—especially since two-thirds of the money in the central bank was in U.S. dollar, euro and yen denominations—the dictator could not have envisioned the warp speed at which the West would impose these sanctions, Varadarajan says.

“Just as Vladimir Putin blindsided the West with the fact and the ferocity of his invasion of Ukraine, the West blindsided Mr. Putin with the speed and aggressiveness of its retaliatory sanctions,” he writes. “The harshest of these is the U.S. prohibition—put in place four days after the invasion began—on all transactions with the Central Bank of Russia.”

‘Too Big to Sanction’

Fishman adds: “Putin didn’t think the West was going to go this far. I think the prevailing wisdom in the Kremlin was that entities like that are ‘too big to sanction.’”

The sanctions that have slammed Russia and caused its people to form bank lines at ATMs have taken its “relatively stable economy” and “pushed it into a dramatic financial crisis in a matter of hours,” Fishman says.

As to whether the West has depleted its arsenal of economic sanctions, the two researchers maintain it has not.

“Russia…has vulnerabilities the West has yet to exploit,” Varadarajan says. “Sberbank is Russia’s largest bank by far,” the equivalent of Wells Fargo, Capital One and Bank of America, rolled into one. It holds approximately 60% of Russian household assets and channels half of all wages paid.

Sberbank is still subjected to the debt sanctions of 2014, plus the fresh 2022 sanctions and, without question, full blocking sanctions yet to come in the immediate future. VTB bank, half the size of Sberbank, has yet to be touched. If the West goes full-throttle after those two banks, it would slow if not stop Russian payrolls, the researchers say.

“There could be very broad-based, microlevel financial and economic dislocation,” Fishman maintains.

North Korea on the Volga

Then there are Russia’s critical state-run companies the West could fully block: “Rosneft, the largest petroleum company; Rostec, the defense behemoth; Gazprom, the gas giant; Alrosa, the world’s leading diamond mining company by volume; Russian Railways; Sovcomflot, the largest shipping company; and Rostelecom, the largest provider of digital services.”

Russia is on its way to becoming a completely pariah state, North Korea on the Volga River, a country with which doing business is fully tainted with shame.