Sanctions on Russia Still Being Debated as Europeans Fear Costs

Poland and Lithuania have backed Ukraine in urging Western powers to immediately impose sanctions on Russia over its military buildup along the Ukrainian border.

As fears mount of a Russian invasion, Poland’s President Andrzej Duda, Lithuania’s President Gitanas Nauseda and Ukrainian President Volodymyr Zelenskiy on Monday “called upon the international community to step up sanctions on the Russian Federation over its ongoing aggression against Ukraine.”

In a statement issued after the leaders met in Ukraine’s Carpathian Mountains, they “once again urged the Kremlin to de-escalate the situation by withdrawing its troops from the Ukrainian borders.”

Despite U.S. President Joe Biden warning Russian President Vladimir Putin earlier this month that Russia would pay a “terrible price” in the event it invades Ukraine, the forward-deployment of hundreds of tanks, howitzers, self-propelled artillery and tens of thousands of troops has not been reversed, say Western security sources.

U.S. and Western officials fear Putin is contemplating a replay of 2014, when Moscow annexed Crimea and used armed proxies to seize a large part of the Donbas region in eastern Ukraine. The White House believes it has only a “four-week window” to stave off a potential Russian invasion of Ukraine. Sergei Ryabkov, Russia’s deputy foreign minister, dismissed reports Monday of the West having a “four-week window” to stop an invasion. “There was nothing to defend [Ukraine] from,” he said.

But Russian officials have said relations with NATO were reaching a “moment of truth” and have called on the West to respond to their demands that the Western alliance bar former Soviet states such as Ukraine from joining the bloc.

Zelenskiy’s repeated calls for “powerful preventative actions, powerful serious sanctions to exclude any thought about escalation” so far have been ignored by the U.S. and NATO’s Western European members. But they have continued their drumbeat of warnings of severe economic penalties if Russia invades Ukraine.

Speaking Tuesday to reporters on a conference call, Assistant Secretary of State Karen Donfried, who for the past week has been holding talks in Moscow, Kyiv and Brussels, said: “The United States has been working very closely with our European counterparts on specific packages of severe consequences for Russia. Should it move forward with military escalation in Ukraine, together with our allies, we have been clear that we would respond with strong economic measures that we have not considered in the past and that would inflict significant costs on the Russian economy and financial system.”

Asked if Western powers are ready to act if there is further Russian aggression against Ukraine today, tomorrow or next week, Donfried said: “There’s clarity about what we will do.”

But current and former diplomats say while there’s broad agreement among Western powers about sanctioning Russia in the event of an incursion, there’s as yet no final accord on the details. Some European governments have less appetite than others, they say. “There is still discussion,” said a British diplomat, who spoke on the condition of anonymity. “It is not all signed and sealed.”

Russia is the European Union’s fifth largest trading partner, and European assets in Russia are valued at about $350 billion.  

Much speculation on what Western powers might do has focused on whether they would cut Russia off from the SWIFT global money-transfer system, which is used by more than 11,000 banks and financial institutions to make and receive cross-border payments. Some commentators have suggested this would be a nuclear option, but others disagree, saying Russia would adapt and could use email, telex and phone calls to arrange money transfers.

“One of the things that I imagine is being considered is more restrictions on the Russian financial infrastructure, which might include SWIFT,” said Tom Keatinge, director of the Center for Financial Crime and Security Studies at the Royal United Services Institute, Britain’s leading defense think tank.

“I’m not convinced it is necessarily the nuclear option,” he told VOA. “You can perfectly well do cross-border payments without using the system. I’m not saying that there wouldn’t be an impact. There would be, because it would throw a ton of grit into Russia’s ability to trade internationally. But I’m not convinced it is the sort of threat that’s going to make Vladimir Putin quake in his boots.”

When disconnecting Russia from SWIFT was first broached in 2014, the impact would have been greater, Keatinge explained. But since then, Russia has clearly given much thought to what workarounds it would use. And, like China, it has been developing its own financial transfer system, known as SPFS, which 400 institutions—mostly banks—are already using.

“The Russian Central Bank has for a long time been developing a playbook,” Keatinge added. Some other analysts fear unplugging Russia from SWIFT would encourage Russia and China to develop a more ubiquitous global payment system of their own.

Keatinge and others suspect potential sanctions would focus on blacklisting more Russian banks and financial institutions and making it harder for Russia to raise capital overseas. But Western countries have different pain thresholds and “the Europeans have significantly more [economically] at stake,” says Adam Smith, a former senior sanctions adviser at the U.S. Treasury Department who later served on the National Security Council during the Obama administration.

He cites the risk the Kremlin would retaliate by cutting off natural gas exports to Europe, which sources 35% of its gas supplies from Russia.

“Going after Russia, like going after China, is not the same as going after Iran,” he told VOA. “Collateral consequences would be meaningful. The question is: What degree of self-harm is the West willing to tolerate in order to give Putin a bloody nose?”
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