Economic Sanctions, in simple terms, refers to penalties imposed on a country, its private citizens or officials to represent punishment for any specific policy or action. A country levies sanctions on another country when it's unable to control its actions via law enforcement. Sanctions can be enforced either by a single nation unilaterally or by a cluster of nations or any international organisation multilaterally.
Economic sanctions are like military force wherein a country can punish another country under sanction on account of objectionable actions. The history of US Sanctions on Russia dates back to 2014, when Russia invaded Ukraine for the first time. Since then, economic sanctions have been continuously imposed on Russia against its dangerous activities and progress.
Recently, President Joe Biden announced some additional sanctions targeting the Russian financial system. The White House Fact Sheet says that the US financial system and market will kick off the largest banks of Russia from the scenario.
Recent Western Sanctions Imposed On Russia
As a response to the invasion and war operations led by Russia against Ukraine, the US government assisted by its allies UK, EU and some Asian nations have piled up sanctions against Russia. The main motive of these sanctions is to attack the financial system of Russia from its core and maximize the aftermath for a long period. The sanctions imposed are discussed in detail below.
Sanctions Imposed By The US
The administration under President Joe Biden ordered that the companies and people of the US cannot have any kind of business dealings with the central Bank of Russia. He also ordered a ban on importing fossil fuels (such as oil) from Russia to the US, which will act like a sword to kill the Russian economy. Besides, he also ordered a ban of all transactions with the Ministry of Finance, the National Wealth Fund and the Russian central bank.
Besides, the administration has also ordered total blocking sanctions on top Russian bankers, legislators, billionaires and their family members. This sanction is also applicable for Putin's wife, Tatiana Navka, his adult children, Elizaveta and Nikolay and his press secretary, Dmitry Peskov. Besides these notable people, the sanctions are also applicable to the top ten members from VTB Bank's management team and twelve members from one among Russia's houses i.e., Russian Duma.
The US also announced sanctions against seven Russian entities and their 26 notable employees who handled media outlets. It has also expelled 12 Russian diplomats from the United Nations. The Justice Department of US has declared a new task force named "KleptoCapture '' which will be responsible for enforcing sanctions and restrictions and taking away luxurious wealthy assets from top rich Russian citizens.
Besides these, the US treasury also levied sanctions on all members belonging to the Russian Security Council, state-owned banks, Sergei Lavrov (foreign minister of Russia), Putin and Belarusian officials.
Sanctions Imposed By the UK
Boris Johnson, the prime minister of the UK, announced an immediate freezing of assets from all important Russian banks which also included Russia's second largest bank, VTB. Sanctions were also imposed on Russian banks using SWIFT payment, Russia’s central bank, Sberbank (Russia's largest bank), Rossiya, General Bank, IS Bank and other potential banks.
The insurance market of the UK blocked space companies from the aviation industries of Russia. In addition to that, vessels controlled, operated, chartered or channeled by Russia weren't banned from UK ports. Aircrafts registered with Russia also couldn't land at UK's airports. The legislation also ordered the stopping of all financial activities between Russia and the UK.
Like the US, the UK also imposed sanctions on Russia’s largest defense company, Rostec, 100 influential and wealthy individuals and their subsidiaries. The administration also imposed bans on useful military and technological exports to Russia.
Sanctions Imposed By the EU
The EU (European Union) freezed the assets of Russian Central Bank thus imposing ban on all transactions. Besides banning seven Russian banks from the SWIFT payments, the bans also extended to media companies such as Sputnik and Russia Today which are owned by the Russian state.
Apart from imposing bans on Russian influential personalities, the EU also banned Russian investments in EU securities. Besides, bans are also imposed on export of aircrafts and technological equipment to Russia. The EU airspace was shut down for all Russian planes and private jets.
Sanctions Imposed By Turkey & Switzerland
Turkey imposed restrictions on Russian warships from passing through or making use of Black Sea waterways. Ignazio Cassis, the President of Switzerland, also adopted the asset freezing and bloc's sanctions. Besides banning transactions with the Russian Central bank, Switzerland also imposed sanctions on exports such as oil, military, defence, technological and security goods.
Sanctions Imposed By Canada & Asia
Canada & Asian countries have also adopted the strict sanctions imposed by the US & the UK. Besides, unilateral sanctions are also adopted by these nations thus aiming to free Russia from the cruel hands of Putin.
Diversified Impact Of These Sanctions on Russia
The numerous western sanctions imposed on Russia are about to break the backbone of the Russian economy. It negatively affects the connection of technology, finance, and trade to the world. Both Russia's stock market and currency trend hit the biggest dip of all time.
Impact On Technology
After the US imposed technology sanctions, it directly affected the tech development of Russia. It restricted the import of high-tech computer hardware, which consists of telecommunications, chips, lasers, semiconductors-related equipment. It disconnects the Russians from access to direct American technology. This damage shows a more significant impact on Russia's defense, aerospace, and IT progress.
The technological sanctions were designed to show immediate as well as the long-term impact on Russia. The American president Biden clarified the new rules, in which the technology built on American machinery and blueprints are prohibited from importing to the country under sanction. Apart from the US European Union, New Zealand, the United Kingdom, Japan, Australia, and Canada were planning similar regulations.
Impact On Energy
Russia stands third in the world for the production of oil and leading in the second position for natural gas. A huge chunk of Russia's economy is dependent on its energy sectors. This spine of Russia's economy is hard hit by the 3 primary restrictions by the US Executive Order over the Russian energy sector.
It tied the export of Russian petroleum, crude oil, coal products, and liquefied natural gas. Secondly, the Executive Order of the US imposed a ban over the fresh investment in the energy sector of Russia.
Impact On Shipping Business
The several sanctions on the Russian shipping business have a direct impact on Russia as well as the world economy. It is considered the most connected economic network in the world.
The recent sanctions of the US and other allies clash several sectors, including shippers, receivers, shipping, shipowners, port operators, and service providers of Russia. It directly connects with the multi sanctions over export control and Russia's barrage entries.
The sanctions not only negatively entail the shipping segments but also include tankers, dry bulk, commodity traders, containers, and gas. As the vessels are detracted or halted, it will worsen supply chain obstruction and lead to market fallout.
The big shipping container lines have quit services to Russia. Many restrictions are being developed over the port access by Russian-owned vessels.
Impact On Banking and Finance
Several announcements of the EU and foreign ministers of Europe have a direct connection with the finance and banking of Russia. They are targeting the banks along with several individuals of powerful banking decision-makers of Russia. Recently Britain imposed sanctions on some billionaires and banks, including GenBank, Rossiya, Promsvyazbank, the Black Sea Bank, and IS Bank.
The US highlighted the ban over Russian sovereign debt, which affects Russian relations with western finance. The recent sanctions are focusing on the small Russian banks, but any imposition over the larger banks will hard hit the Russian banking and financial strength.
Impact Of Russia Ukraine War on Digital Ruble
The western sanction on Russian trade and commerce is an unbearable weight for the Russian economy. The economists of Russia and the world believe that digital Ruble is the only way out of this debt. The IIF (Institute of International Finance) clarified the increased livelihood conditions and how they can affect the foreign obligations of Russia.
It is a serious matter of concern for Russia as its foreign exchange reserves are locked in other countries. The reason for this jam situation is that the foreign exchange reserves are held in the same countries which imposed the sanctions, froze their assets, and limited the options of the central bank.
In an attempt to curb the ruble depreciation, the central bank of Russia doubled its interest rate to 20 percent. Apart from this action, Russia has a keen eye over the digitalization of the ruble. This can be a huge jump in the Russian economy. And focusing on this, two of the banks of Russia initiated the process of transactions of their Central Bank Digital Currency (CBDC)- Digital Ruble.
With baby steps in this area, Russia is planning a sprint over the economic race. The further planning regarding the digital rubel includes opening digital wallets, all types of payment related to goods and services, and interaction with the Federal Treasury. Russia pushed this CBDC in all directions to have a dedicated investment on it and to become a reserve currency for Russia.
The financial sector of the country has a strong belief that the digital ruble has the potential to regain the lost status of the Russian economy. At the same time, they want the CBDC to accumulate funding, which can reduce the tax and interest inflation. This move of Russia by trusting CBDC created a matter of concern for the Western countries who imposed the sanctions. The CRB (Central Bank of Russia) is also promoting the flow of cryptocurrency and the CBDC at the same pace.
Will Russia Use Cryptocurrencies To Avoid US Sanctions?
With a view to cut down the access of Russia from foreign capital, The US and its allies imposed sanctions on Russia due to its invasion of Ukraine. The earlier sanctions resulted in a loss of $50 billion to Russia every year. Undoubtedly, the additional sanctions would lead to more losses and debt for Russia.
The sanctions of the US are potential only because it owns the dollar which is a reserve currency and is used for transactions globally. Thus, banks, from all corners of the world, play a pivotal role in the successful enforcement of sanctions. It's because banks keep a record and close eye on the sources and destinations of all money and transactions. Banks also have anti-money-laundering laws which act like securities to the government's sanctions thus blocking entities under sanction from holding debarred transactions.
In addition to that, banks also have KYC rules (i.e., know your customer) which give them a detailed report of every client's identity. On the contrary, digital assets and cryptocurrency platforms don't have much information about the client and his identity. In such a scenario, Russia can easily trade with other currencies thus keeping in mind not to deal with dollars.
Generally, cryptocurrency transactions automatically get recorded on the blockchain. To slip through this transparency, Russia has advanced technology to change and conceal the sources of transactions. In addition to that, Russia is the home to the world's largest ransomware industry. Reports say that nearly 74% of ransomware revenue, which would be more than $400 million lost globally, made its way to Russian entities.
Keeping in view the above dark powers of Russia, the Justice Department of the US created a national cryptocurrency enforcement team to monitor the activities of cryptocurrencies.
The US treasury, on analyzing the potential threats of cryptocurrencies not being as technologically developed as banks, has warned them of possible future sanctions. In such a scenario, it's still a possibility that Russia can use cryptocurrencies illegally to mitigate and get rid of sanctions.
The scenario of the sanctions over Russia is as horrific as the war. It is not only crushing the trend and establishment of Russian trade and commerce, but at the same, it will change the approach of Russia entirely in every field. Such a huge global exporter is facing halts in progress in the sector of trade. Russia is a massive factor in the world economy.
Although the situation of war gives Russia political progress, it is a huge risk in the other sectors of growth and development. Multiple sanctions on Russia make the country think over the digital side of their currency. At the same time, the country is showing interest in cryptocurrencies. This is the same country that imposed several rules and factors of legalization over crypto. But the recent situation of the country changed it into one of the biggest supporters of cryptocurrency.