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The U.S., EU and Others Have Hit Russia With a Pile of Sanctions, But They Still Have More Tools to Hammer Its Economy

The measures have already inflicted severe economic damage.

This story originally appeared on Business Insider

Russia's invasion of Ukraine sparked powerful economic and financial retaliation from major Western powers — perhaps the strongest actions taken against a major global power since World War II.

The United States alongside its European allies imposed sanctions meant to choke off Russia's ability to access critical cash reserves and cut off some Russian financial institutions from SWIFT, the international network considered a pillar of global finance.

"What's really different is the fact that this is going against an economy as large as Russia," Richard Nephew, a sanctions expert and senior research scholar at Columbia University, told Insider. "You don't have these sorts of major moves against these kinds of economies because they are so systemically important."

The sanctions already announced have been historically severe. The initial wave of punitive measures targeted Russian banks and elites close to the Kremlin, while follow-up actions have already dealt a major blow to the Russian economy.

Russian banks, airlines, and elites face the heat from sanctions

Here are the biggest sanctions levied by the US, EU, UK, and other countries against Russia so far:

  • Certain Russian banks are blocked from accessing SWIFT, a global communications service that serves as the backbone for the world's financial system.
  • The US froze $630 billion in assets held by the Russian Central Bank, preventing the country from using its pile of international reserves to finance its attack on Ukraine or prop up the economy.
  • The entire EU and other European countries announced they will ban Russian flights from their airspace.
  • The US, UK, EU, and Canada have all targeted powerful Russian elites with personal sanctions, including President Vladimir Putin and Foreign Minister Sergey Lavrov. The measures freeze the individuals' assets in participating countries and ban them from conducting business there.

The sanctions against the Russian Central Bank in particular are unheard of, escalating the economic punishment against Russia to a new level.

"This is a sanctions action without precedent," Edward Fishman, the former sanctions head of Russia and Europe at the Treasury Department, wrote on Twitter. "As a result, the specific consequences aren't easy to predict with a high level of confidence. But the consequences will certainly be far-reaching."

In addition, the US and Europe have levied sanctions on Putin to freeze his considerable wealth. Heads of state are rarely directly targeted by sanctions, and the move puts him alongside a small roster of brutal autocrats like North Korean leader Kim Jong-un and Syria's Bashar al-Assad.

What's happening to the Russian economy

Some sanctions, like those blocking exports, could take months to have a visible effect. Yet others are already hobbling the Russian economy and risk plunging the country into a recession.

The value of the Russian ruble tanked to a record low against the US dollar on Tuesday, as the announcement of harsher sanctions dragged the currency's value even lower. The ruble sank as much as 26% on Monday to an intraday low of $0.0085 cents, making the currency worth less than a single cent. Last Wednesday, before the invasion began, the ruble traded at roughly $0.012.

The ruble's cratering value has sparked a mad dash in Russia to withdraw cash. Residents lined up outside of banks and ATMs amid concerns that banks would impose withdrawal limits and that, if they didn't act fast, their savings would evaporate entirely. Some Moscow banks ran out of cash entirely, according to MSNBC.

The rushes to withdraw cash appear eerily similar to the bank runs that plagued the US economy during the Great Depression. Such activity can drag the Russian economy into its own death spiral as banks lose too much of their deposits and slide into insolvency.

Russia could print more rubles to prop up the country's money supply, but that risks an inflation crisis. With the ruble continuing to sink and Russians quickly losing confidence in the national economy, the country is stuck between two bleak options and little international support to lean on.

"They're now facing a lot of really ugly choices" Nephew, who once oversaw sanctions policy against Iran, said. "The decisions they make here are not going to get easier."

The Central Bank of Russia has also been kneecapped by US sanctions. The freezing of its dollar-denominated assets essentially blocks the central bank from using its own funds to prop up the ruble's value. It also pushes Russia further out of the global financial system, leaving it fewer options with which to ease its economic pain.

More broadly, economists have estimated that the latest sanctions used against Russia will have a dire effect on the country's economic growth. Analysts at Capital Economics said on February 23 that just the first wave of sanctions was enough to slash 1% from Russian gross domestic product. Harsher measures, such as the country's removal from SWIFT, could weaken GDP by 5%, they added.

The US and its allies are still leaving some economic tools on the table

The Western response to Russia has been focused on dealing one blow after another to the Russian economy, particularly its financial system. President Joe Biden has repeatedly ruled out sending American troops to Ukraine and there's no sign that the White House will backtrack from that.

There are additional sanctions that the West could impose. Russia's energy industry, a big exporter of oil and gas, has been spared from so far from Western sanctions. But European states and the Biden administration seem reluctant to hit it with punitive measures out of fear of causing price spikes or jeopardizing the flow of gas to Europe.

"There's still a lot of trepidation of what it would look like if we were to start clamping down on the Russians' ability to export oil and natural gas, especially in Europe," Nephew said.

Countries united against Russia could also take more stringent action toward seizing Russian elites' nonfinancial assets like yachts and real estate. Many Russian billionaires park their cash in such items to avoid the effects of sanctions.

The US, UK, EU, and Canada announced Saturday the group would form a transatlantic task force for freezing such assets linked to sanctioned individuals and companies. Still, the countries could accelerate their efforts to crack down on Russian mansions and yachts or work with more governments to find and seize assets in other jurisdictions.

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