What Additional Sanctions Could Stop Putin’s Aggression

Governments from across the world have united in reaction to Russia’s invasion of Ukraine. While governments have been swift in response to Russia’s invasion, sanctions have been tiered in the hope of a Russian stand down.

The target has not just been on Russian banks, but also oligarchs and wealthy Russian individuals.

Sanctions by Country Show United Front

By country, the current list of sanctions imposed on Russia since the Donetsk and Luhansk recognition include:

The United States

• Russia state-owned banks VEB and Promsvyazbank: Blocked from trading debt on European and U.S markets.
• Sanctions on Russia’s elites and their families and hierarchy leadership amongst civilians.

The United Kingdom

• Blocked the sale of sovereign debt in London. Sanctioned banks include Rossiya Bank, IS Bank, General Bank, Promsvyazbank, and Black Sea Bank.

Germany

• End to the certification process of the Nord Stream 2 gas pipeline from Russia.

Ukraine

• Sanctions on 351 Russians. These include lawmakers supporting the use of Russian troops in Eastern Ukraine and independence of separatist-controlled territories within Ukraine
• Ban on entry into Ukraine and the use of Russian troops in eastern Ukraine. There is also a ban on all activities, access to assets, capital, property, and licenses for business.

The EU

• Sanctions on 351 Russian politicians favoring two separatist regions in Ukraine.
• Additional sanctions on 27 Russian officials and defense and banking sector institutions.
• Limited access to EU debt capital markets and the financial markets.

The Asia Pacific including Japan

• Russian bond issuances and asset freeze of selected Russian politically connected persons.
• Travel restrictions on Russian politically connected persons.

Market Reaction to Sanctions and Russia Action Has Been Brutal

In response to Russia’s invasion of Ukraine, Russia’s Ruble fell by 2.93% on Wednesday. It has been far worse today, with the Ruble down by 7.60% to $87.34. The Ruble was at its lowest level since a January 2016 low of $85.96.

Things have not been much better for the global equity markets. At the time of writing, the NASDAQ 100 was down 1.23%, with the DAX tumbling by 4.28%. The losses have been nothing compared with the MOEX Russia Index, which ended the day with a 35.2% loss.

The Sanction Road Ahead Includes SWIFT

While many key players involved in Russia’s invasion of Ukraine have been sanctioned, there may be more to come.

News of fierce fighting and casualties in numerous locations raises the prospect of heavier sanctions. The bigger question is what’s next. For a more punitive move against Russia, many will likely look for the U.S to lead the way.

An extension of sanctions to a wider list of Russian companies and politically connected persons may be the next step. For Russian President Putin, standing down on the sanctions of assets beyond Russia’s borders may be far-fetched.

The ace-in-the-hole for the West and other Ukraine allies would be to cut Russia off from Swift. This remains the worst-case scenario. Today, Czech president Milos Zemen proposed cutting Russia off from the SWIFT international payment system. The markets will likely look for a U.S lead on such a move.

Putin is unlikely to have taken such a step without considering the worst-case scenario. The worst-case scenario is anything but a U.S. military response, which is very unlikely.