The White House on Thursday unveiled the main elements of its plan to sanction Russia following Vladimir Putin’s attack on Ukraine, vowing to hinder Russia's ability to do business with other countries.
During a speech to the nation Thursday, President Joe Biden promised the U.S. and its allies were in "full and total agreement” to impose measures limiting "Russia’s ability to do business in dollars, euros, pounds, and yen.”
The sanctions come in coordination with those also rolling out Thursday from the United Kingdom and European Union for the “harshest package of sanctions we have ever implemented,” as one top EU diplomat put it.
The overall plan, as White House Deputy National Security Advisor for International Economics Daleep Singh recently laid out to Yahoo Finance, will create a "negative feedback loop." That "vicious feedback loop," he added, will spawn "a weaker currency, imported inflation, higher imported inflation, a hit to Russia's purchasing power, lower investment, and lower growth.”
Here are the main elements of the plan announced Thursday by the White House.
Cutting ‘financial ties’
A central economic weapon for the team will be to go after Russian finances directly.
“What we've learned that trade sanctions alone are not effective, we also need to cut off financial ties," Christine McDaniel, a former Deputy Assistant Secretary at the Treasury Department, told Yahoo Finance. She added that sanctions tend to work better when “really targeted at individuals and particular entities.”
Earlier this week, during the so-called "first tranche" of sanctions, the Biden administration targeted two state-owned Russian banks as well as the families of some wealthy Russian elites.
In both cases, the administration promised it could go further. On Thursday, it did just that by blocking more Russian banks and adding more elites to the sanctions list, with Biden saying they “should share in the pain” from Putin’s actions. "We will keep up this drumbeat of those designations against corrupt billionaires in the days ahead,” the president said.
The actions will target nearly 80% of all banking assets in Russia, Secretary of the Treasury Janet L. Yellen said Thursday. “Treasury is taking serious and unprecedented action,” she said.
Lawmakers on Capitol Hill, including Senate Banking committee chairman Sherrod Brown (D-OH), promised quickly to “work with the Biden Administration to implement them against Russian officials and oligarchs who prop up Putin’s regime.’
Also, Thursday, Biden said sanctioning Putin himself is "on the table.”
Russian President Vladimir Putin during a recent televised address to the nation in Moscow. (Bai Xueqi/Xinhua via Getty Images) ·(Xinhua News Agency via Getty Images)
Energy Prices
White House officials have noted that energy markets are “where Russia has systemic importance.” Indeed, Russia is the world's second-largest producer of natural gas and third-largest producer of crude oil.
On Thursday, Biden said the package would allow energy-related payments to Russia to continue but that his administration would closely monitor energy supplies for disruptions. In addition, Biden said releasing additional barrels from the U.S. strategic petroleum reserve was possible “as conditions warrant.”
Singh, the White House advisor who spoke to Yahoo Finance, says cutting off the oil spigot and further destabilizing markets would be Putin’s choice. “It would be a terrible mistake for Russia to weaponize its oil supply,” he said. "[Russia] depends on oil and gas revenues for its exports and for the Russian government's budget revenues.”
‘Export controls’
Another key area that the administration also announced Thursday are export controls to ban foreign and domestic companies from sending coveted exports like high-tech semiconductors to Russia.
These actions “will come over time,” Biden said. However, he added a prediction that, with allied countries, “we estimate we will cut off over half of Russia's high tech imports and strike a blow to their ability to continue to modernize their military" and other industries like aerospace.
The question will be how much influence the administration can actually exert given that 100% of the world’s most advanced semiconductors are manufactured overseas and three-quarters of global chip manufacturing capacity is now concentrated in East Asia.
During an interview Wednesday, BTIG Managing Director Isaac Boltansky said “it looks as though the White House does have some support from key nations on the tech side and here, I'm talking about Singapore, Taiwan, and Japan.” That could mean, he explained, the administration may be in a position to “slow or completely stop the flow of key inputs like semiconductors or computer chips” to Russia.
Not announced: changes to the SWIFT financial system
One of the harshest financial steps the West could take — which so far the Biden administration has declined to do — would be to kick Russia out of the SWIFT banking system.
An acronym for Society for Worldwide Interbank Financial Telecommunication, the system is tasked with delivering secure messages between financial institutions. Cutting Russia off from the network has been called a "nuclear option."
Biden argued Thursday that existing sanctions against banks were just as significant but that cutting off SWIFT access remains a possibility. He also acknowledged that right now, it’s “not the position that the rest of Europe wishes to take.”
The Biden administration may face pressure to take the controversial step in the coming days from some U.S. lawmakers.
Overseas officials like Ukraine's Minister of Foreign Affairs could also pressure Biden.
For now, the key question will both be how unified the West actually is on these sanctions and how long they last.
As CSIS International Security Program Senior Adviser Mark Cancian recently put it in an interview: “The Russians seem to be inclined to just tough it out, that's going to be Putin's attitude. He's going to hope that with time, he'll be able to either get around the sanctions or that the sanctions will be lifted.”
Ben Werschkul is a writer and producer for Yahoo Finance in Washington, DC.
