EXPLAINER - What are the US' options for sanctions against Putin

WASHINGTON (AP), -- There are many financial options to punish President Vladimir Putin if Russia invades Ukraine. These include cutting Russia off from U.S. banking and imposing sanctions on a former Olympic gymnast, who is believed to be Putin's girlfriend.

25 January 2022 Tuesday 12:22
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EXPLAINER - What are the US' options for sanctions against Putin

The United States and its European allies have publicly stated that they will hit Russia like never before if Putin sends his troops to Ukraine. However, leaders have not provided any concrete details to the public and argued that it is best to keep Putin guessing.

After weeks of negotiations, it is not clear that the Americans achieved agreement from both the U.S. & European governments on what sanctions would be imposed and when they would be lifted.

Here are some examples of financial actions that should be taken into consideration

SWIFT RETALIATION

The U.S. and its European partners would consider cutting Russia out the SWIFT financial network. This system moves money around the world from one bank to another, causing economic damage both immediately and over the long-term. This could result in Russia being cut off from all international financial transactions. It also would mean Russia losing international profits from its oil and gas production.

Both the Atlantic allies and the Russian side considered the SWIFT option when Russia invaded Ukraine's Crimea in 2014. They also supported separatist forces in eastern Ukraine. Russia declared that the act of kicking it out SWIFT would constitute a declaration war. After being criticized for their weak response to Russia's 2014 aggression, the allies abandoned the idea.

Russia has attempted to create its own financial transfer system since then, but with limited success.

Before, the U.S. was able to persuade SWIFT to expel Iran from its SWIFT system. This was due to Iran's nuclear program.

However, removing Russia from SWIFT could also cause harm to other economies, such as those of the U.S. or its key ally Germany. U.S. lawmakers stated last week that the Biden administration is still studying how severe this impact would be. When asked by reporters about the Russian SWIFT ban proposal, Annalena Baerbock seemed to have doubts.

Baerbock stated that "the toughest stick will not always end up being the most intelligent sword."

DOLLAR CLEARING

If Putin invades Ukraine, the United States has one of its most potent financial weapons: blocking Russia's access to the U.S. Dollar.

The dollar still holds the majority in financial transactions worldwide, with trillions of dollars being used daily.

U.S. banks and financial institutions can clear transactions in dollars. For Putin, this means that foreign banks must be able access the U.S. banking system to settle dollar transactions.

The United States has the power to block access, allowing it to inflict financial suffering far beyond its borders. The U.S. had previously suspended dollar clearing from financial institutions for violating sanctions against Iran, Sudan, and other countries.

Biden stated to reporters that the U.S. was looking at cutting off Russia's ability to trade dollars with the Russians. It's possible for the U.S. to do it on its own, unlike the SWIFT option or other financial measures. Russians and Russian businesses would find it difficult to perform even the most basic transactions like buying payroll or making purchases, as they wouldn't have access to the U.S. bank system.

EXPORT CONTROLS

Jen Psaki, White House Press Secretary, has confirmed that the U.S. may impose export controls. This could potentially cut off Russia from high-tech that makes smartphones smart and helps warplanes and passengers fly.

Officials suggested that Russia could be added to the most restrictive countries for export control purposes.

This would limit Russia's ability and products to acquire integrated circuits and other components due to the dominance of U.S. software and technology. This could impact aircraft avionics and machine tools as well as smartphones, tablet computers, gaming consoles, televisions, and tablets.

These sanctions could also be used to target Russian industry, such as its defense and civil aviation. This would impact Russia's high tech ambitions in artificial intelligence and quantum computing.

As with other penalties, U.S. export limitations could encourage businesses to seek alternatives in other countries including China.

BOND MARKETS

Russia was unable to borrow money last year when the Biden administration banned U.S. financial institutions buying Russian government bonds directly from Russian state institutions. However, the sanctions did not target the secondary market. This leaves this as an option.

NORD STREAM 2 NATURAL GAS PIPELINE

Both Republicans and Democrats in Congress have opposed Russia's Nord Stream 2 natural-gas pipeline to Germany for many years. They argued that it would allow Russia to use its gas supply control as leverage to reach its European policy goals. Rival bills in Congress would sanction operators of the pipeline -- Republicans want to immediately impose sanctions, while Democrats are only willing to do so if Russia invades Ukraine.

To avoid being in conflict with allies Germany, the Biden administration has previously resisted this level of sanctions.

Officials from Germany claim that blocking the operation of the pipeline in the event Russia enters Ukraine is "on the table" in the case of an invasion. However, this is the extent they have publicly stated.

GOING AFTER OLIGARCHS... AND A REPORTED GIRLFRIEND

The U.S. uses sanctions to sanction the immediate circle of leaders, their families, military and civilian circles. Putin, his family, friends, and relatives could also be sanctioned, as could Russia's powerful business and banking oligarchs.

Jim Banks (Indian Republican Representative) is co-sponsoring sweeping legislation that would add sanctions to Ukraine even before any Russian invasion. This includes the SWIFT cutoff and the Nord Stream penalties.

They would also urge the use of sanctions against Russia's top echelon.

This includes Putin's family as well as Alina Kabaeva (a woman who is believed to be Putin's girlfriend), who was a winner of the 2004 Olympic gold medal in rhythmic gymnastics.