Introduction

Economic sanctions refer to a policy of withdrawing customary trade and financial relations in response to a diplomatic or foreign policy challenge. Governments may choose to enact comprehensive sanctions on an entire country, or direct sanctions on institutions, groups, and individuals in order to impact a government’s actions or decisions. In the case of its foreign policy with Russia, the United States has used targeted economic sanctions to deter and alter Moscow’s aggressive military actions in Ukraine. 

Russia’s annexation of the Crimean Peninsula in 2014 sparked initial sanction measures imposed on Russian individuals, entities, and financial institutions by the U.S. and E.U. The recent recognition of the Donetsk and Luhansk breakaway regions as independent and the subsequent Russian invasion of Ukraine have also been met with a harsh international response, most notably in the form of economic sanctions. These policies are intended to deter Russia from further military escalation against Ukraine and to publicly indict violations of international law. However, the new sanctions introduced in 2022 have the potential to be far more economically damaging and isolating for Russia than any previous measure.

In December of 2021, as Russian forces continued to amass on the Ukrainian border, the United States warned of new measures if Russia invaded Ukraine. Prior to and in the immediate aftermath of Russia’s military aggression in Ukraine, the U.S. and its European allies implemented sweeping economic sanctions on multiple sectors of the Russian economy as well as Russian individuals. In response to Russia’s claims of de facto control over Ukraine, an initial round was announced from February 21-23 to deter further action. After Moscow launched an armed invasion on February 24, another round of sanctions was introduced. The most recent, and arguably the most damaging, sanctions were introduced from February 26-28 as active fighting continued. 

Although sanctions are extensively used in American foreign policy, their actual impact on Russia has been widely debated. Sanctions generally fall into two categories: those that seek to encourage a change in Russian state behavior and those that seek to impose costs without necessarily having a specific policy goal. The success of these sanctions is measured by their ability to influence another state to change its behavior in accordance with U.S. foreign policy goals. As Russia gathered troops at its Ukrainian border in the lead-up to the invasion, sanctions were introduced as economic deterrents to further aggressive military action. A best-case scenario may have been to avoid war altogether. As armed conflict is underway, however, it seems that this objective was either impractical or not well addressed by threats of sanctions. Sanctions now are focused on economic isolation to encourage disengagement or ceasefire in the region.

The 2022 sanctions have been more expansive than previous rounds and focus on five areas: financial institutions, export controls, personal sanctions against individuals, investment prohibitions, and energy and gas. Three of these expanded measures—preventing Russia’s central banks from using foreign currency reserves, termination of certification for the Nord Stream 2 pipeline, and blocking Russian banks from the SWIFT system—are significant escalations from past rounds and may be the most impactful in changing Russia’s behavior.

Financial Institutions

Financial institutions and banks were targeted the most heavily during this round of sanctions, measures which the U.S. Treasury called “unprecedented.” The most critical of Russia’s financial institutions were targeted, including its largest, Sberbank. Sberbank holds about a third of all Russian bank assets, is Russia’s biggest lender, and is majority-owned by the Government of the Russian Federation (GoR). These sanctions require all U.S. institutions to close Sberbank accounts and reject future transactions with Sberbank or its subsidiaries. Under these new measures, Sberbank is also barred from purchasing and making transactions with U.S. dollars. The European branch of Sberbank now faces failure in Europe in the fallout from the U.S. and E.U. sanctions. 

Additional financial institutions—such as VTB Bank, Otkritie, Novikom, and Sovcom—were identified in new sanction measures. These institutions have been identified as systemically important to the Russian financial system; these sanctions aim to undermine the Russian financial sector and export economy from participating in the global market and using the U.S. dollar. Significantly, the full blocking sanctions on VTB Bank, which holds 20% of Russian banking assets, freeze assets from being accessed by the GoR and mark a measure on one of the largest institutions the U.S. Treasury has ever targeted. About 80% of the $46 billion daily transactions conducted by Russian financial institutions are conducted in U.S. dollars. By barring Sberbank and VTB from processing payments through the United States’ financial system, the foreign exchange transactions normally conducted by these institutions will be greatly disrupted. 

Export Controls

Export control sanctions target the enactment of a Foreign Direct Product Rule focused towards strategic export controls on Russia’s technological and industrial industries, a “novel” policy that has previously been used to “hobble” foreign corporation Huawei. Blocking the sale of high-tech exports to Russian entities undermines military and industrial production by subverting their ability to acquire critical defense and intelligence technology. The new measures ban the import and export of arms and the sale of dual-use goods and technology to Russian military end-users, including technology such as computers, sensors, and lasers. 

The U.S. has also banned imports of Russian oil, liquefied natural gas, and coal, a step that marks a long-term effort to weaken Russia’s lucrative oil industry. This move diverges from European sanctions on Russia and stops billions of profits from reaching the Russian energy sector. Export controls have also been applied to oil and gas extraction equipment.

Personal Sanctions

Additionally, Russian politicians and oligarchs connected to Moscow were sanctioned personally,  including President Vladimir Putin, foreign minister Sergei Lavrov, 351 members of the Russian parliament, financial actors such as the head of Promsvyazbank, and senior executives at state-affiliated banks. Personal sanctions include freezing foreign-held assets and travel bans. While personal sanctions are not the most effective on a global scale, undermining Russian elites’ power and credibility could have lasting effects on the country’s domestic politics.