By Karin Strohecker

(Reuters) – The United States and its allies pledge to hit Russia hard with sanctions following the invasion of Ukraine by Russian forces on Thursday. It was the largest European state-to-state assault since World War Two.

Following Monday’s recognition by Russian President Vladimir Putin of two separatist regions in Eastern Ukraine, Western capitals initiated a first round of sanctions.

U.S. President Joe Biden announced that Washington and its allies will issue “severe sanctions”, with more measures to follow on Thursday.

Boris Johnson, British Prime Minster, will outline new measures for parliament around 1700 GMT.

Also, the European Union is set to issue new curbs in the later part of the day. It stated that the sanctions package would severely impact Russia’s economy, increase capital outflows, elevate inflation, and slowly erode Russia’s industrial base.

South Korea and Norway have already pledged to be part of the measures.

We have provided details about the proposed curbs and other sanctions against Russia.

BANKS & FINANCIAL FIRMS

Britain announced sanctions against five banks, Genbank IS Bank Promsvyazbank, Black Sea Bank Bank, Genbank and Bank Rossiya. They are all small lenders. Only Promsvyazbank is on the central banks list of systematically influential lenders.

Biden already announced sanctions against Russia’s VEB bank bank and Russia’s military bank. This refers to Promsvyazbank which deals in defense contracts.

According to the U.S. Treasury Department, assets that are under U.S. control will immediately be frozen. U.S. citizens and entities cannot do business with them.

Senior U.S. officials added that VTB Bank and Sberbank would be subject to sanctions should the Russian invasion proceed.

Bank Rossiya was already subject to U.S. sanctions in 2014 because of its close ties with Kremlin officials.

European Union agrees to blacklist all banks financing separatist activities against eastern Ukraine.

Russia’s banks, which are large and well-integrated into the international financial system mean that sanctions can be felt beyond Russia’s borders. The Bank for International Settlements’ (BIS), data shows that European lenders account for the majority of Russia’s nearly $30 billion foreign bank exposure.

Russia’s central banks data shows that total Russian foreign banking assets and liabilities reached $200.6 billion, and $134.5 million, with the U.S. dollar portion at around 53%, down from 76%-81% 20 years ago.

SOVEREIGN DEBT & CAPITAL MARKETS

EU said the new package of EU-related measures “targets the Russian government’s access to EU financial and capital markets, and will limit funding of escalatory or aggressive policies.”

This bans EU investors from investing in Russian state bonds.

Washington announced this week new restrictions to Russia sovereign debt transactions. Americans who had been barred from directly investing in Russian sovereign bonds will now be prohibited from buying it on the secondary market.

Last week, Britain threatened to stop Russian companies raising capital in London. London is Europe’s financial center for these transactions. However, it did not do so in Tuesday’s announcements.

Access to Russian bonds was already restricted even before these events.

U.S. sanctions placed in 2015 rendered future Russian dollar debt unaffordable to many investors and key indexes. Biden banned U.S. investors in April 2021 from purchasing new Russian ruble bonds due to accusations of Russian interference in U.S. elections.

Since 2014, Russia’s debt has fallen by 33%. It was $733 billion at the beginning of 2014. This dropped to $489 billion during the third quarter 2021. A country with lower debt has a better balance sheet, but it is less likely to have access to financing that would support economic growth or development.

INDIVIDUALS

The United States and the EU have already placed travel bans, asset freezes and other restrictions on several Russian citizens.

Five people were sanctioned by the EU for their involvement in Russian parliamentary elections in annexed Crimea on Monday, September 20,21.

On Tuesday, it announced that the bloc would ban all Russian legislators from the lower house who voted for recognition of breakaway regions. It will also freeze assets and prevent them travelling to the EU.

Meanwhile Britain has imposed sanctions on three men, Gennady Timchenko and billionaires Igor and Boris Rotenberg – all of whom are allies of President Vladimir Putin from St. Petersburg whose personal fortunes grew precipitously following Putin’s rise to the presidency. They have already sanctioned the three men.

The United States also imposed sanctions on Tuesday on Russian elites close to Putin, including Alexander Bortnikov, the head of the Federal Security Service, Russia’s powerful domestic security and counterintelligence service.

In Tuesday’s attack, his son Denis Bortnikov was also targeted. He is the vice president of Russian state-owned financial institution VTB Bank Public Joint Stock Company, and the chairman of its management company.

Also designated was Putin’s first deputy chief of staff and former Russian Prime Minister, Sergei Kiriyenko. In response to Alexei Navalny’s poisoning, the United States and Britain had previously made him a target. Vladimir Kiriyenko (his son) was also named on Tuesday.

Promsvyazbank’s chief executive and chairman was also targeted. Petr Fradkov, the Treasury’s chief executive of Promsvyazbank was also targeted. He is accused of working for the transformation and support of the defence industry.

The United States uses the Specially Designated Nationals tool (SDN). This effectively bans companies and individuals from the U.S. bank system and also freezes U.S. assets. It was previously used to sanction oligarchs.

But, Washington has had to rethink its approach after the explosion in aluminium prices due to 2018’s sanctions against Rusal.

The January bill, which was not revealed by the U.S. Senate Democrats, aimed to impose broad sanctions against Russian military officers and top Russian government officials. In addition, President Biden indicated that he is open to personal sanctions being considered for Putin.

Moscow claimed that any attempt to impose sanctions against Putin would not cause him harm personally, but be “politically disruptive”.

ENERGY CORPORATES & NORD STREAM 2

Already, the US and EU have placed sanctions on Russia’s defense and energy sectors. Gazprom, the state-owned gazprom, its oil arm Gazpromneft, and Lukoil and Rosneft, as well as oil producers Lukoil and Surgutneftegaz, are all currently under United States/EU sanction.

There are many options for expanding and deepening sanctions, including the possibility of preventing companies from settling in U.S. Dollars.

Nord Stream 2, a newly completed pipeline connecting Russia and Germany, is still awaiting approval from the EU and German authorities. Berlin then put it on ice.

American sanctions were imposed on Wednesday against the company responsible for building Russia’s Nord Stream 2 natural gas pipeline.

CURBING CHIPS

EU leaders have pledged to take measures to reduce Russia’s technology position in critical areas, including high-tech parts and cutting-edge software.

The White House told America’s chip industry that it is ready to impose new sanctions on Russia exports in the event of a Russian attack on Ukraine. These restrictions could also include blocking Russia’s access global electronics supply.

Similar sanctions were taken during the Cold War. These measures kept the Soviet Union technically behind and inhibited economic growth.

SWITCHING FROM SWIFT

Disconnecting the Russian financial sector from SWIFT would be one of the most extreme measures. SWIFT handles international financial transfers.

According to a senior U.S. official, they will not take SWIFT sanctions off of the table.

SWIFT cut off Iranian bank accounts in 2012 as the international sanctions against Tehran were intensified. The Carnegie Moscow Center thought tank stated that Iran has lost 30% of its export revenues and half of its international trade.

According to Maria Shagina, a Carnegie Moscow Center researcher, these two countries would be the worst affected by such a move. Their banks are among the top SWIFT users in Russia, and they have the highest frequency with Russian banks.

When Russia annexed Crimea in 2014, there were calls for Russia to be cut off from SWIFT. Moscow developed an alternative messaging platform, SPFS.

According to Russia’s central bank, the number of SPFS messages was approximately one fifth of Russian internal traffic in 2020. They plan to double this figure to 30 percent by 2023. SPFS is still struggling to make itself known in international transactions.