Russia sanctions – now comes the hard part

As Russia’s invasion of Ukraine enters its third week, a broad network of financial, travel and trade sanctions has been established in a fairly short order. Much more has been done in the past week with the announcement of complementary measures by the United States, the United Kingdom and the EU.

For the leaders of the original Western democracy, the hard part has just begun. In terms of policy, the work turned into the implementation of many restrictions that required the enactment of new laws and, in some cases, the establishment of new organizational structures to manage and monitor them. In terms of public diplomacy, the main goal is to persuade the people of each country to stay on course without resorting to a comprehensive set of military action and / or provocative weapons transfers. It’s too early to talk about “ban fatigue” at the moment, but it will become a critical issue in the coming months.

When and if Russia’s foreign exchange obligations are declared by default, as soon as possible by March 16, Western leaders will have achieved a real embargo that would relieve political pressure for some time. But for a while.

New United States, United Kingdom and EU system

In this moment of prohibition, we are witnessing two kinds of decisions. These will be major strategic changes, which are relatively rare, and small extended sanctions packages that add some additional measures or add new authorized persons / companies to the list of nominees, such as the new EU package adopted on 9 March or the latest UK oligarch sanctions.

Measures involving the sale of Russian energy were considered out of the table in the first round of sanctions, but this week the United States, the United Kingdom and the EU took significant steps to reduce Russian energy purchases, further limiting their partially frozen foreign exchange reserves. The United States and the United Kingdom have completely banned the import of Russian petroleum products, which has already created complications for shipping on routes and in general worldwide. Strictly speaking they are not sanctions, these measures are clearly part of a wider campaign.

The EU has announced its own accelerated plan to increase renewable energy production (REPowerEU) and a strategy to use these resources to reduce Russian energy purchases over time.

Western businesses are lagging behind

Western companies have accelerated their withdrawal from Russia-based commercial activities in recent days. Following the closure of signature retailers and fast-food suppliers, the Western financial system (credit card, payment system) has announced the suspension of most of their activities in Russia. The main ones were Visa, MasterCard and American Express. Cardholders issued from Russia can still use the cards internally until the expiration date, but international transactions have been blocked. As a result of these measures, several Russians abroad have trapped themselves on holidays. PayPal and Zoom have suspended most operations involving Russia.

Approval still more oligarchs

While many enterprising young journalists have focused on finding and uncovering hidden Russian alligator resources, such as real estate and mega-yachts, aggressive Western hunt President Biden noted in his recent State of the Union speech that it is moving more slowly. Countries such as Turkey and the United Arab Emirates have established a reputation as temporary safe havens, and shell companies, often set up by top-flight law enforcement agencies, hide enough property ownership that obtaining the required seizure / freeze orders has become a daunting challenge.

The UK has been a bit more aggressive in recent weeks as the London Aid “The London Landromat” backs the oligarchs over decades of public dissatisfaction with the provision of exclusive financial services in London. The UK’s Economic Offenses Bill, which has been in effect since mid-March, is said to allow the UK government to move faster and faster than before in enforcing sanctions, including the ability to deprive oligarchs of costly countersuits for damages filed by lawyers.

As if to demonstrate its new tough stance, the UK announced new sanctions on March 10 against seven oligarchs, including Roman Abramovich, Oleg Deripaska and Rosneft CEO Igor Sechin. Abramovich, owner of Chelsea Football Club in the United Kingdom, is seen as the poster child of a number of Russian oligarchs who are now deeply involved in the UK economy.

Aviation ban and aircraft lease questions

Global aviation ping pong games involving airlines flying to Russia have dominated recent news, with flights being suspended by the vast majority of Western carriers. Aeroflot has announced a temporary suspension of its international flights from March 8, following its budget subsidiary Pobeda. Aeroflot flights continue to Belarus.

Russians caught abroad have been advised to arrange flights for home transit through countries that have not joined the embargo, such as Azerbaijan, Armenia, Kazakhstan, Qatar, the United Arab Emirates, Turkey and Serbia.

Another emerging embargo-related issue is the concern of hundreds (500+) modern aircraft currently leased from the West by Russian companies. Most leases under Western sanctions are set to expire by March 28, prompting some leasing firms to take immediate steps to seize their aircraft outside of Russia. Moscow has enacted a law prohibiting its companies from returning aircraft if the lease is canceled. This has created a source of potential insolvency for Western insurers as well as legal tactics over the years or even decades if the planes are not returned.

Suggestions for new sanctions from Kyiv

Meanwhile, the governor of Ukraine’s National Bank, Kirill Shevchenko, suggested in a BBC interview that the suspension of Russian funds abroad would be used for war compensation and post-conflict reconstruction. He also threw out a list of seven possible new sanctions, which he argued would increase economic pressure on Moscow:

-Business of the Central Bank of Russia expelled from the Bank for International Settlements (BIS), grouping of central banks;

– Suspension of Russia and Belarus from the IMF meeting, and blocking their access to the assets issued by the IMF in the name of special drawing rights, “since these funds could be used to finance military action against our country;”

-The US and EU should instruct their banks to sever press relations with Russian banks;

-But access to trading and financial data platforms Refinitive and Bloomberg Russian and Belarusian clients;

-International money transfer operator Western Union should stop providing cash to Russian and Belarusian banks;

-Armenia, Kazakhstan, Kyrgyzstan, Tajikistan, Turkey and Vietnam should take steps to suspend the activities of the Russian payment system, Mir;

– China’s UnionPay card payment system (similar to MasterCard and Visa) should stop offering payment card services issued by Russian banks.

The Kremlin’s response

On March 10, Russia announced that it was banning the export of medical, telecommunications, vehicles, agricultural and electrical equipment, as well as some forest products, such as timber. Without imports, Russia’s participation in the global trade of high-tech goods would be negligible and the effects of these sanctions would be very limited. Russian export bans are not universal. An estimated 48 countries, including the United States and the EU, will be affected. Georgia’s South Ossetia and Abkhazia’s isolated regions and members of the Russian-led Eurasian Economic Union may be allowed export concessions.

As if in response to the Kremlin, the United States and the EU announced on March 11 that they would jointly take steps to remove Russia from its “most favored nation” trade status, paving the way for significant tariff increases on small exports. Russia may still allow access to Western markets. And so the economic trap tightens.

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