With easy sanctions on Russia exhausted, the West faces tough economic choices

As the world’s wealthy democratic powers roll out new sanctions against Russia in response to the terrifying images of Ukrainians being executed in the town of Bucha, it has become clear that the simplest options have now been exhausted and deep differences have emerged. between the allies on the next steps.

The European Union has offered a first crackdown on Russia’s energy sector in response to its invasion of Ukraine launched in February, banning imports of Russian coal. But EU countries remain divided even on this decision, restricting even less imports of Russian oil and gas which are more important for their economies.

The United States and Group of Seven allies announced new sanctions against Russia’s biggest lender, Sberbank, more state-owned companies and more Russian government officials and their family members, barring them from the system financial based on the US dollar.

The United States also barred Americans from new investment in Russia and banned Moscow from paying holders of sovereign debt with cash in American banks.

Although Russia’s heavily restricted ruble hit a six-week high on Wednesday, US Treasury officials say sanctions are starting to turn Russia into a stark 1980s Soviet-style closed economy,

But the US sanctions contain exclusions allowing Russia to continue to collect revenue from energy exports, which may help fuel its invasion of Ukraine. US Treasury Secretary Janet Yellen told US lawmakers on Wednesday that tighter restrictions on Russian energy were not yet possible for European allies dependent on Russian oil and gas.

Russia provides around 40% of the European Union’s natural gas consumption, which the International Energy Agency estimates at more than $400 million per day. The EU receives a third of its oil imports from Russia, or about $700 million a day.

“We’re at the point where we have to suffer,” said Benn Steil, director of international economics at the Council on Foreign Relations think tank in New York. “The first batches of sanctions were designed as much to not hurt us in the West as to hurt Russia.”

US Secretary of State Antony Blinken speaks during his meeting in Brussels on Wednesday with Australian Foreign Minister Marise Payne. | Reuters

Divisions in Europe have become more apparent this week. After Lithuania announced on Saturday it would stop importing Russian gas for domestic consumption, Austrian Finance Minister Magnus Brunner voiced his opposition to sanctions on Russian oil and gas, telling reporters in Luxembourg that these would harm Austria more than Russia.

Lack of unity on cutting energy imports means options are limited to increase the pressure further, but the investment ban announced on Wednesday could push more multinational companies out of Russia, Daniel Tannebaum said , former compliance officer at the Treasury’s Office of Foreign Assets Control.

“You could outright start banning trade in more industries,” a move that would cut Russians off from more types of Western goods such as pharmaceuticals, similar to a ban on luxury goods imposed at the start of the war. said Tannebaum, who leads the council. the financial crime practice of Oliver Wyman.

The United States has pushed European allies to inflict more pain on Russia while trying to ensure the alliance against President Vladimir Putin does not fray, a balance that is only getting tougher.

“You’ve kind of reached the ceiling – on both sides of the Atlantic – for what can be done easily and what can be done quickly,” said Clayton Allen, US director at political risk consultancy Eurasia Group. , referring to sanctions.

To move to a tougher round of sanctions, U.S. officials will need to provide assurances to European countries that energy markets and supplies can be stabilized to avoid serious economic hardship, Allen said. An economically weakened EU does not help anyone, Allen added.

“If Western Europe is plunged into a recession, that will severely limit the amount of support – both moral and material – they can provide Ukraine,” Allen said.

US Secretary of State Antony Blinken is expected to make the case for further action in Brussels this week at NATO and G7 foreign ministers’ meetings. US Treasury Undersecretary Wally Adeyemo held similar meetings last week in London, Brussels, Paris and Berlin.

According to a European diplomat involved in the sanctions talks, there are also loopholes to be filled, including the continuation of sales by German and French companies in Russia, and the continued hunt for luxury yachts and other assets parked by Russian oligarchs. .

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