The U.S. has sent the clearest message yet that Russia, its key economic sectors as well as its leader Vladimir Putin, could face the severest sanctions it has ever faced if it invades Ukraine.
On Tuesday, U.S. President Joe Biden intimated that his Russian counterpart could face personal sanctions should Moscow give a greenlight for its army to invade.
Russia has around 100,000 troops and military hardware stationed at various points along its border with Ukraine and there are heightened fears it is planning to invade its neighbor, although Moscow has repeatedly denied that it is planning to do so.
Western allies are taking no chances with NATO placing its forces on standby and reinforcing its positions in Eastern Europe with more ships and fighter jets. The U.S. has put thousands of troops on heightened alert, meaning they are ready to deploy to the region should the crisis escalate.
Severe sanctions
The U.S., the U.K. and the EU have already said that Russia will be subjected to new sanctions on key individuals and sectors of its economy if it does invade Ukraine. Russia has already seen sectors like energy, finance and defense targeted by previous rounds of sanctions for its 2014 annexation of Crimea from Ukraine.
But the U.S. gave its clearest signal yet on Tuesday that it will look to cripple Russia’s economy — which would likely lead to immense pressure on Putin, both from the Russian people and the country’s business leaders — if Moscow invades its neighbor again.
Biden said Tuesday that he would feel obliged to beef up NATO defenses in Poland and Romania, in Eastern Europe, and when asked whether he could see himself imposing sanctions on the Russian president personally, he replied, “Yes, I would see that.”
The U.K. has signaled it could do the same with the country’s Foreign Secretary Liz Truss saying, “we are not ruling out anything” when asked if Putin could be sanctioned, Reuters reported Wednesday.
Threats of personal sanctions against Putin would be a big step up from previous measures against the Russian state and could see the West target Putin’s wealth and inhibit his travel, although no further details have been revealed.
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Senior White House officials told reporters on a call regarding economic deterrence measures being considered against Russia that “we are prepared to implement sanctions with massive consequences that were not considered in 2014” when Russia annexed Crimea.
The measures they’re considering range from more financial sanctions to the use of “novel export controls” that could greatly impede Russia’s access to U.S.-made technology components, similar to those used against Chinese technology giant Huawei.
“The gradualism of the past is out, and this time we’ll start at the top of the escalation ladder and stay there. We’ve made efforts to signal this intention very clearly,” one senior White House official said on the call on Tuesday.
Officials said the U.S. was also prepared to impose export controls — which would essentially block Russia from obtaining U.S.-originated software and technology in an effort to harm key economic sectors in Russia. These could hurt “Putin’s strategic ambitions to industrialize his economy quite hard,” they said.
Such controls, they noted, “would impair areas that are of importance to him, whether it’s in artificial intelligence or quantum computing, or defense, or aerospace, or other key sectors.”
That’s not an exhaustive list with “all options” very much on the table, the official added, saying “we’re united with Allies and partners to decisively impose severe consequences on Russia if it further invades Ukraine.”
When asked if export controls could impact global supply chains, one official stated that there would be a minimal impact “because we’re talking about denying to Russia downstream products that are critical to its own ambitions to develop high-tech capabilities in aerospace and defense, lasers and sensors, maritime, AI, robotics, quantum, et cetera.”
“And in each of these supply chains, we and/or our allies and partners design and produce the technology. And the export control would deny to Russia a sophisticated input that it can’t replace through domestic production or alternate supplies.”
Such sectors, the official noted, were deliberately earmarked as ones that “Putin himself has championed as the way forward for Russia to diversify its economy beyond oil and gas” — another sector that the U.S. could seek to undermine if Russia weaponizes energy supplies.
Europe’s energy sphere has become something of a battleground for Russia and the U.S. in recent years and the issue has come to the fore as tensions have grown over Ukraine.
Russia supplies the EU with around 40% of its natural gas supplies, and has built a massive gas pipeline Nord Stream 2, so it can send gas supplies directly to Germany, bypassing Ukraine. The U.S., which would like to increase its own liquefied natural gas exports to Europe, has condemned the project as damaging Europe’s energy security.
Indeed, the Biden administration has been looking at ways to secure energy for European allies in case Moscow decides to cut its energy supplies to the region in a bid to extract concessions over Ukraine.
One senior administration official, who declined to be named in order to share details of ongoing plans, told CNBC Tuesday that the administration was coordinating with major buyers and suppliers of liquefied natural gas to ensure a diversion of supplies to Europe if necessary.
U.S. saying ‘we’ll sanction you to hell’
Some analysts have pointed out that the latest signals coming from the U.S. on potential sanctions on Russia are the strongest they’ve seen.
“I have been monitoring U.S. sanctions language on Russia since 2014 and what we are seeing below is a huge step up,” Timothy Ash, a senior emerging markets sovereign strategist at Bluebay Asset Management, said Tuesday night in a research note.
“The U.S. officials are saying to Putin ‘bring it on, you go into Ukraine we are going to sanction you to hell, and try retaliation via cutting energy supplies to Europe. We are planning for that — we will get Europe thru the winter and you will end up as the loser.’ The U.S. is trying to help Europe break its energy dependence on Russia,” he noted.
Close followers of Russian politics believe that the current surge in tensions over Ukraine reflects Moscow’s (and more specifically, Putin’s) bid to reverse the expansion of Western influence in Russia’s back yard, and former territories, since the end of the Cold War and fall of the Soviet Union in 1991.
Sanctions remain one of the few options open to the West as there is little appetite to engage in a military conflict with Russia. Ukraine is not a member of NATO and, as such, the military alliance is not obliged to defend it.
But Western allies want to stop Russia from controlling and coercing (and invading) its neighbors. Russia, meanwhile, wants legal assurances that Ukraine will never be able to join NATO and for a rollback of the alliance’s deployments in East Europe. The U.S. and NATO have refused those demands.
“The Western allies have limited room for concessions” when it comes to Russia, according to Andrius Tursa, Central and Eastern Europe advisor at Teneo Intelligence.
“They would risk undermining the credibility of the U.S. and NATO security guarantees, which form the backbone of the post-Cold War security architecture in Europe. After all, the demise of the post-Cold War security order seems to be one of the Kremlin’s key objectives,” he noted Tuesday.
“Even if the current crisis is resolved through diplomacy, relations between Russia and the West appear to have approached a more hostile and unpredictable phase. The Kremlin’s perception of the US – and by extension NATO – as its main geopolitical rival is unlikely to dissipate until there are any meaningful changes in Russia’s political leadership.”
Markets have been on edge this week as Ukraine concerns have dominated global headlines, and there is little certainty over what Putin will do next.
On Tuesday, Holger Schmieding, chief economist at Berenberg Bank, noted that “the heightened risk that he may invade Ukraine has started to affect markets … this is not our base case. Still, it is among the tail risks that we need to ponder. Like other observers, we do not know what Putin is up to and what may happen next.”
Schmieding said that Putin had already gained some victories at home from the crisis over Ukraine, with higher oil and gas prices a boon to energy exporter Russia.
“Facing mounting concerns about falling living standards at home, Putin is currently reaping windfall gains from the surge in oil and natural gas prices,” Schmieding noted, adding that “with his sabre rattling, he has already achieved something. The world is talking about him. The U.S. and Russia are discussing the fate of Europe, occasionally even without Europe itself present at the table.”
“Putin can present this to his domestic audience as a return to the times of the Cold War when the U.S. and the Soviet Union were the two global players that mattered most.”