After the start of the war in Ukraine, the USA, the EU, Japan and others want to punish Russia with extensive sanctions. How much the measures will damage Russia’s economy will probably only become clear in some time.
Washington – US President Joe Biden was certain when announcing the extensive punitive measures: “The sanctions we have imposed go beyond anything that has been done so far”.
He praised states that accounted for around two-thirds of global economic output behind the sanctions. These could be exacerbated in the event of a further escalation in Ukraine.
Russian banks are subject to sanctions
The USA imports significant quantities of Russian oil, but overall the economy is much less closely linked to Russia than that of the European countries. But the US government controls a powerful weapon: access to the world’s largest financial market and the global reserve and trading currency, the US dollar. Washington is now using this lever with its Western allies to turn Russian financial institutions into international pariahs.
Six Russian banks, including the country’s second-biggest institution, VTB Bank, are completely sanctioned. This means that US persons and companies are not allowed to do business with them, their assets in the US – or even their assets that come into contact with the US financial system – are frozen. In addition, the government bans all US institutions from maintaining accounts for the largest Russian financial institution, Sberbank. This makes transactions in US dollars extremely difficult for the bank, which, according to the White House, manages around a third of all Russian assets.
Transactions of Russian financial institutions suspended
The dollar and the euro are the world’s most important trading currencies, which are also not easy to replace in many international trades. The US Treasury Department explains it this way: “Russian financial institutions carry out $46 billion worth of currency transactions worldwide every day, 80 percent of which is in US dollars. The vast majority of these transactions are now being suspended.” Around 80 percent of all Russian deposits are now the target of sanctions, the ministry said.
However, there are also special permits for certain transactions, such as in the oil and gas sector, because a disruption to the energy business, which is financially enormously important for Russia, would also be painful for the Europeans and Americans. Also, Russian banks are not all equally dependent on foreign currency capital. The Russian central bank has also already declared that it will guarantee all transactions in rubles and foreign currencies for banks affected by Western sanctions. Russia has high currency reserves – but even these are not infinite.
The US and its partners have also banned trading in Russian government bonds. The same applies to bonds issued by 13 state-owned companies such as Gazprom. They, too, are unlikely to be able to raise any more capital in western countries.
Possible long-term consequences of the sanctions
In the short term, Russia can certainly compensate for many problems. In the long term, however, isolation from Western capital and financial markets will entail significant costs and economic distortions. At the White House, Deputy National Security Advisor Daleep Singh said the coordinated sanctions had hit Russia’s economy badly even when they were announced. The ruble and the stock exchange have fallen, and the government’s refinancing costs have risen significantly.
“These impacts will, over time, result in higher inflation, higher interest rates, lower purchasing power, lower investment, lower productivity, slower growth and lower living standards in Russia,” Singh said.
New export controls
The US government bans the export of high-tech products to Russia, including semiconductors, computers, telecommunications and encryption technology, and certain parts for the aviation and maritime industries. In addition, this should also apply to some products that are manufactured abroad but contain US technology. According to the White House, the restrictions affect around 50 percent of all high-tech imports from Moscow. “This will cause serious costs to the Russian economy, both immediately and over time,” US President Biden said. “We will curtail their ability to compete in the high-tech economy of the 21st century,” he said.
According to a statement by the Semiconductor Industry Association, a lobbying association for US chip manufacturers, the new rules could be “significant” for Russia. But they shouldn’t be a big burden on the industry’s business. The country is not an important customer and does not even account for 0.1 percent of global chip sales. dpa
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