WAR: No more Russia sanctions; as USA and allies face economic bite

As the world’s affluent democratic powers impose more sanctions on Russia in response to shocking photographs of killed Ukrainians in Bucha, it is evident that the easier alternatives have been exhausted, and sharp disagreements have formed among allies about next moves.

In response to Russia’s invasion of Ukraine in February, the European Union recommended a ban on Russian coal imports as a first step in limiting the country’s energy sector.

However, even on this issue, EU countries are divided, much less on curbing imports of Russian oil and gas, which are more crucial to their economy..my..

New sanctions have been imposed by the US and its Group of Seven partners on Russia’s largest lender, Sberbank, as well as other state-owned firms and Russian government leaders and their families, effectively shutting them off from the US dollar-based financial system.

The US has also blocked Americans from making new investments in Russia, as well as Moscow from paying its debt holders with money held in US banks.

Despite the fact that Russia’s severely limited rouble rose to a six-week high on Wednesday, US Treasury officials claim the sanctions are causing Russia to revert to an austere, Soviet-style closed economy from the 1980s.

However, the US sanctions include exemptions that allow Russia to continue collecting cash from energy exports, which could assist fund its invasion of Ukraine.

On Wednesday, US Treasury Secretary Janet Yellen warned US legislators that tougher sanctions against Russia’s energy sector are not yet possible for European partners that rely on Russian oil and gas.

Russia produces over 40% of the European Union’s natural gas usage, which is valued at more than $400 million per day by the International Energy Agency.

Russia supplies a third of the EU’s oil imports, worth around $700 million each day.

“We’ve reached a point where we have to bear some pain,” said Benn Steil, the Council on Foreign Relations’ international economics director in New York. “The first round of sanctions were designed to protect us in the West as much as they were to protect Russia.”

This week, Europe’s divides have been more visible.

Following Lithuania’s announcement on Saturday that it will no longer import Russian gas for domestic use, Austrian Finance Minister Magnus Brunner expressed his opposition to Russian oil and gas sanctions, telling reporters in Luxembourg that they would damage Austria more than Russia.

NEXT STEPS

Because of the lack of unity on limiting energy imports, options for increasing pressure are limited, but the investment ban announced on Wednesday could push more multinational firms out of Russia, according to Daniel Tannenbaum, a former compliance officer at the Treasury’s Office of Foreign Assets Control.

“You could outright start banning trade in more industries,” said Tannenbaum, who heads consulting firm Oliver Wyman’s anti-financial crime practice. This would cut Russians off from more types of Western products such as pharmaceuticals, similar to a luxury goods ban imposed in the early days of the conflict.

The US has been pressuring European partners to inflict greater pain on Russia while also ensuring that the anti-President Vladimir Putin alliance does not disintegrate, a delicate balance that is only becoming more difficult to maintain.

Regarding the penalties, Clayton Allen, US head of the Eurasia Group political risk consultancy, stated, “You’ve kind of struck the ceiling – on both sides of the Atlantic – for what can be done quickly and in short order.”

To move to a harder wave of sanctions, US authorities will have to provide European countries confidence that energy markets and supply can be stabilized to avoid catastrophic economic hardship, according to Allen.

Allen noted that an economically weakened EU benefits no one.

“If Western Europe goes into recession, the amount of moral and monetary support that they can provide to Ukraine would be severely limited,” Allen warned.

At this week’s NATO and G7 foreign ministers talks in Brussels, US Secretary of State Antony Blinken is likely to advocate for stronger action.

Similar meetings were held last week in London, Brussels, Paris, and Berlin by US Deputy Treasury Secretary Wally Adeyemo.

According to one European diplomat participating in sanctions talks, there are still loopholes to plug, including continued sales of German and French enterprises into Russia, as well as the ongoing hunt for luxury yachts and other assets held by Russian oligarchs.

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