How Western Sanctions Are Harming Russia Business

Western powers are responding to Russia’s invasion of Ukraine with an increasing range of economic and financial sanctions against the country’s leaders, businesses and public institutions.

The goal is to cripple the Russian economy, sap the financial resources needed for the military assault on the Kremlin, and inflict personal damage on the president and those close to him.

Liz Truss, the Foreign Secretary, said “we are cutting funding for Putin’s war machine”, calling the measures “the largest set of sanctions in our history”.

Here are the penalties, what they do, and what could happen next.

People

Vladimir Putin and his Foreign Minister Sergei Lavrov were hit on Friday with a freeze on personal assets in the UK, US and EU.

A string of prominent bankers, industrialists and Putin cronies were added to the lists of those sanctioned in February. In the case of the UK, this now extends to 190 Russians.

It is unusual for a head of state to be treated this way and place Putin on a par with exceptionally blood-soaked dictators, including Bashar al-Assad in Syria.

The net extends further than just senior officials – no Russian national will be allowed to hold more than £50,000 in a UK bank account. The EU imposed a similar restriction and prevented the country’s citizens from investing their money in EU securities, such as bonds and stocks.

Companies

Businesses are also in the crosshairs as a string of banks and companies serving Russia’s military machine have had their assets frozen while the country’s airlines are denied access to European airspace. .

Banks will be barred from making payments in dollars or pounds, with banks and businesses banned from raising debt in London.

Russian planes are barred from much of western airspace and goods with potential military use will be blocked from export to Russia.

Perhaps more powerfully, banks’ access to the Swift messaging system is severely restricted. It is essential for making international payments, so banks are effectively cut off from the global financial system. Some derogations will be authorized because European countries want to be able to continue to buy energy from Russia, which supplies 40% of its natural gas.

The British government has also acted on maritime transport, announcing on Tuesday that it “prohibits all vessels owned, operated, controlled, chartered, registered or flying the flag of Russia from entering British ports”. This follows suspensions by MSC, Maersk and other container shipping companies, potentially cutting Russia off from global supply chains.

State entities

The central bank of Russia was also sanctioned. This is crucial as Putin was believed to be relying on his $650 billion war chest of foreign exchange reserves to cushion the blow to the economy and financial system. In addition to the central bank, the United States blocked transactions with the Russian Ministry of Finance and the wealth fund.

On Tuesday, state media Russia Today and Sputnik were taken offline by YouTube in the UK and Europe. Meta, the parent company of Facebook and Instagram, on Monday blocked access to broadcasters on its networks across the EU. However, it is still possible to watch RT on public television in the UK.

Do the sanctions work?

The clearest immediate impact is the Russian currency crash, a crash in exposed bank stock prices and potential early signs of a bank run.

The ruble has plunged around 30% in the past fortnight, increasing pressure on the central bank and raising the prospect of inflation hitting 20%.

Russia’s central bank more than doubled interest rates to 20% Economists now expect a substantial recession.