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Current Affairs

Sanctions facing Russia

Date: 25 February 2022 Tags: Miscellaneous

Issue

First set of tough economic sanctions have been announced on Russia by US President Joe Biden.

 

Background

The actions are dubbed as broader cascade of financial sanctions and penalties over Russia’s moves against Ukraine.

 

Details

  • The first sets of sanctions have targeted members of Putin’s inner circle and banks that are crucial for Kremlin. It will also limit Russia’s ability to raise money abroad.

  • US authorities are reserving stricter measures in case Russia goes ahead and takes action that threatens Ukraine’s territory and sovereignty. 

  • It is expected that penalties would cripple Russia’s ability to do business at home and abroad and likely start a domestic recession.

 

Possible sanctions

Nord Stream

  • Germany has suspended certification of Russia-operated Nord Stream 2 pipeline that connects Germany to Russia for supplying natural gas.

  • US lawmakers have already stated that the project was a strategic mistake and are likely to target the project to cripple Russia’s LNG export economy.

  • In case sanctions are imposed, it will be financially impossible for Russia to operate the pipeline. It is not clear if US will impose its own sanctions or amplify Germany’s.

 

Russian oligarchs

  • The targeted individuals are high on political hierarchy and are considered close to Putin. They own more than $80 billion in combined assets.

  • Actions will be aimed at hitting banks and people supporting Putin but efforts will be made to reduce effects on Russian common man.

 

Targeted firms

Sectoral sanctions can be imposed on specific industries such as energy, finance, technology and defense.

 

SWIFT

  • Restricting SWIFT, which is a financial system to clear money from bank to bank around the globe, will be the toughest action.

  • It will damage Russia’s economy immediately and in the long term. The move could cut-off Russia from most international financial transactions.

 

US banking system

The US has the most potent financial weapon in form of US dollar clearing. Companies making international transactions need to access the U.S. financial system to settle dollar transactions.

 

Export controls

  • US made products would be difficult to be accessed by Russia or its companies. This includes software, technology and equipment. 

  • They are mainly used in all modern gadgets starting from airplanes, cars, mobile phones, PC, gaming consoles and machine tools.