PS: For more on the potential invasion, read our latest explainer.

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Researched by: Sara Varghese

Sanctions version #1: Can they stop the invasion?

After President Putin dispatched “peacekeeping forces” to Donetsk and Luhansk—Russian separatist-held territories in Ukraine—both the US and its allies announced a series of sanctions. They include the following:

• The US has banned all business with entities operating in the separatist-held territories. It imposed penalties on three people close to Putin and two state-owned banks—“effectively kicking them out of the US banking system, banning them from trading with Americans, and freezing their US assets.”
• Washington also placed new restrictions on Russia’s ability to raise money by issuing sovereign debt—cutting it off from Western financing.
• The biggest move came from Germany—which suspended the certification process for the Nord Stream 2 gas pipeline. It hits Russia where it hurts most. Moscow is heavily dependent on its oil revenues—and long considered its relationship with Germany as immune to geopolitical battles.
• The UK has frozen assets of five Russian banks and imposed sanctions on three Russian billionaires and certain members of Parliament.
• Meanwhile, the EU announced an agreement among member states to impose sanctions, saying: “We are limiting the Russian government’s ability to raise capital on the EU’s financial markets.”

Will this stop Putin? It depends how the sanctions are interpreted. In themselves, they do not inflict great damage. OTOH, they can be read as a “warning shot,” which is how Biden framed them:

“I’m going to begin to impose sanctions in response, far beyond the steps we and our allies and partners implemented in 2014. And if Russia goes further with this invasion, we stand prepared to go further.”

At least some US experts think Biden is indeed serious—though Putin may not share that assessment, or even care… for now:

“Mr Putin’s decision on Monday to press ahead with the troop movement suggests that he has concluded that the costs of new sanctions are tolerable, despite US talk of ‘massive consequences’ for his country. Several of his top aides made that point in choreographed speeches to him in a meeting of his Security Council on Monday in Moscow.”

Key point to note: Some Russia experts say Putin has no real intention of invading Ukraine. Rather, a limited military operation “might have been the least risky way for Mr Putin to avoid sending his troops home empty-handed. Recognition [of Donetsk and Luhansk] could thus be an effort to ‘escalate to de-escalate’.” If so, then both sides can claim their own version of victory and go home. 

Sanctions version #2: Can they punish Putin?

If Putin insists on marching all the way to Kyiv—Ukraine’s capital—he will paint both the US and Western Europe into a corner. And it will be truly unpleasant for both sides—and likely the global economy. 

These constitute the harshest possible measures the West could take:

One: Block Russia from using SWIFT—a system of financial payments that moves money among thousands of banks around the world. Russia’s oil and natural gas exports account for more than one-third of its federal revenues—and it depends on SWIFT to make the petrodollars flow. According to a former Russian finance minister, this “could cause Russian gross domestic product to fall 5%.”

Putin’s pushback: This punishment was considered and rejected in 2014—the last time Russia invaded Ukraine. One reason: Moscow said the move would amount to a “declaration of war.” That said, Russia has attempted to create an alternative system of payments—which hasn’t gained traction. But it could rely on the Chinese system of global payments instead.

Added blowback: In retaliation, Russians could hold back gas shipments: “If cutting off payments to Russia under SWIFT then the likelihood of Gazprom curtailing gas supplies increases as they wouldn’t be getting paid.” Also: It is also a kiss of death for European and US banks which do business with Russia. It means that billions of dollars in outstanding loans they have in Russia would not be repaid.

Two: Blacklist Russian banks—which is one of the big moves signalled by Biden in the latest sanctions. Along with banning them from dealing in pounds and dollars—a threat delivered by Johnson—it would make it impossible for them to conduct international transactions. This would force Moscow to bail out its banks—which in turn threatens the stability of the Russian economy. 

Point to note: Targeting Russia’s ability to access Western capital is part of this pincer move. Moscow will find it difficult, if not impossible, to finance its economic growth.

Putin’s pushback: Russia has a large reserve of hard currency worth $635 billion—which its foreign minister says is enough to soften the blow. But despite the brave words, most financial experts conclude a banking blacklist will do the most damage: “It will definitely have a strong impact on the domestic financial system. It will raise the risk of financial instability including a widening of spreads and a sell-off of the rouble.”

Point to note: The squeeze would be even more painful if the ban extended to foreign banks to deal with their Russian counterparts—which would make Chinese assistance less likely. After the 2014 sanctions, four Chinese state-owned banks declined to do business with the Russians to avoid running afoul of Washington.

Three: Target Russia’s energy revenues—which accounts for more than a third of the Russian budget. And most agree that it is the ultimate weapon in the West’s arsenal:

“‘Oil is the lifeblood of their economy and of the Kremlin’s ability to project power,’ he said, noting that the United States could use sanctions to restrict the supply of goods and services to Russia’s oil production industry, and even pressure allies to reduce their purchases of Russian oil.”

Putin’s pushback: Blocking Russian oil and gas will severely damage Europe—which is hooked on its supplies:

“The main problem is that Europe is hooked on Gazprom's supply pipelines and Brussels has made no substantial headway in reducing dependence as it promised to do after Putin's invasion of Crimea in 2014. In 2020, 35% of total EU gas imports came from Russia, up from 26% in 2010. In 2021, Russia's share of gas imports into the EU was more than 42% via pipeline alone, not including LNG shipments.”

So turning off Europe’s oil supply—which Putin has tacitly threatened in recent months—is as much Moscow’s weapon as that of the West. 

Quote to note: A European expert sums up the dilemma over imposing serious sanctions thus: “[I]f they move 130,000 soldiers, and then you show up saying, ‘I will stop selling you Gucci bags,’ that sends [the wrong signal]... it’s like going with a knife to a gunfight.”

The big squabble over sanctions

Setting all the big talk about “massive” consequences aside, the reality is that there is no consensus on how to hit Putin—or how hard. 

The US: Given a divided Congress, Biden doesn’t even have the domestic backing to go after Putin. There was lots of noise in the Senate about passing a “mother of all sanctions” bill—which resulted instead in “the legislative equivalent of a strongly worded letter scolding Mr Putin for a ‘provocative and reckless’ military buildup.” Point to note: While Biden has broad authority to impose crippling sanctions on his own, some measures—like cutting Russia off from SWIFT—require Congress’ cooperation.

Europe: Severe sanctions will require a unified EU response—and they are anything but unified. Some countries like Germany and Poland have long been waffling, and “always have to be coaxed.” But the bigger cause for indecision is this:

“[I[mposing an EU sanctions package requires unanimous approval by all 27 member states, and would require agreement that Russia has taken what the EU views as an illegal action. There’s also always the possibility that a country like Hungary, which has its own autocratic regime and sympathies for Russia, may hesitate to be too tough on the Kremlin, using a kind of veto power that all the 27 member states have in foreign policy matters."

Key point to note: It is easy enough to impose sanctions, but the West has to have the stomach to sustain them, as Senator Marco Rubio bluntly points out:

“I don’t think the hard part is going to be crafting a package of sanctions that we can impose with our allies. I think the challenge long-term is going to be sustaining them. That’s the point…. And it’s difficult to sustain them particularly with how vulnerable Europe is on the energy front.”

The bottomline: Two quotes sum up the double-edged nature of sanctions. One:

“For an average Russian, the harshest US measures could mean higher prices for food and clothing, or, more dramatically, they could cause pensions and savings accounts to be severely devalued by a crash in the rouble or Russian markets.”

And two: “The problem of Western policymakers is that Russia is just too big an animal in the global economy.” So the big question for the West is this: Are they cutting off Putin’s nose or their own?

Reading list

Politico has two excellent pieces on the tensions within the EU over sanctions here and here. Also see: Bloomberg News on Europe’s jitters. Vox offers a good analysis of the most effective way to punish Putin. Reuters has an in-depth look at sanctions aimed at Russian banks. New York Times looks at whether the latest sanctions will stop war, and the chaos in the US Congress. Washington Post looks at Russia’s likely response. For what China will do: Wall Street Journal (paywall) signals a recent distancing.