Ahead of Biden-Putin Talks: Will Russia Be Cut Off from Western Financial Markets?
Many hours: This is the length of the virtual meeting that Joe Biden is planning to hold with Vladimir Putin. A considerable part of it will be taken up by the discussion of the severe sanctions that Russia will face in the event of an invasion of Ukraine.
As recently as a month ago, many of the United States’ European allies, including Germany, were in favor of de-escalating the conflict with Moscow. The proof that the Kremlin doesn't want a new war with Europe was supposedly the withdrawal of Russian troops (though not military equipment) from the Ukrainian border in the spring in exchange for holding the U.S.-Russian leaders’ summit and the joint decision to cooperate on strategic arms limitation or halting Iran's nuclear program.
However, according to the Financial Times, in early November, Washington provided its wide range of NATO allies with detailed intelligence on Russian preparations for the attack, which is normally reserved for America’s closest allies, like Britain. A month later, some of it, including the Russian units ready to strike, was published by The Washington Post. The report speaks of a strike that would involve 175,000 professional soldiers (100 tactical battalions) with the support of 100,000 reservists. The attack would be multi-directional, from northern and eastern Ukraine, but also from the Black Sea. It would allow the Russians to take over as much as half the country. The expected deadline for the operation: the end of January.
Such precise data has convinced Germany, France and many other U.S. allies that the invasion is very real and that it is necessary for the whole Western world to discuss joint sanctions in order to dissuade Vladimir Putin from the invasion.
"What I am doing is putting together what I believe to be the most comprehensive and meaningful set of initiatives to make it very, very difficult for Mr. Putin to go ahead," warned Joe Biden.
The comprehensive set of initiatives has not been disclosed yet, but leaks to U.S. media give some idea. The harshest would be cutting Russia off from Western financial markets. It would involve blocking Russian banks' access to the Society for Worldwide Interbank Financial Telecommunications transaction system, and preventing the Russian state from financing its debt not only in the primary, but also in the secondary market. While Russia has amassed $600 billion in foreign exchange reserves that would allow it to weather such a test for some time, experts point out that Iran has lost almost half of its exports through similar restrictions.
On Ukraine's Army Day, Ukrainian President Volodymyr Zelenskyy stated that the Ukrainian armed forces are capable of resisting any attack from Russia, as reported by Reuters.
An important element of the sanctions would be tightening the system to prevent money laundering by Russian oligarchs, says Maria Shagina from the Carnegie Moscow Center. She points out that today, Kremlin-linked tycoons are circulating funds in the world's major financial markets through countries like Latvia or Cyprus. They have deposited around $1 trillion in Western financial institutions. The threat to freeze the fund would be a powerful wake-up call to Moscow, especially because a considerable part of the Russian government does not share Putin's “obsession” with reclaiming Ukraine.
Another significant step is to limit Russia's direct investments in the West. Poland generally does not allow Russian capital, but other Western countries are far more liberal. This has allowed Russian firms to take over, for example, key suppliers for the British aircraft engine manufacturer Rolls-Royce Holdings or OAO Gazprom’s strategic gas storage facilities in Germany.
But the embargo on imports from Russian strategic companies such as RUSAL (the world's second largest aluminum producer) is more questionable. This can disrupt supply chains in the West.
That leaves Nord Stream 2. According to Axios, a few weeks ago, Chancellor Angela Merkel was trying to persuade Biden not to impose sanctions on the pipeline. But that was before the new government took effect in Berlin and before the U.S. revealed how serious the situation is.
In Washington itself, an Iowa Republican senator told Fox News that there are enough Senate members who oppose Nord Stream 2 to overturn Biden's potential veto against sanctions on the consortium that will operate the pipeline.
As recently as a month ago, many of the United States’ European allies, including Germany, were in favor of de-escalating the conflict with Moscow. The proof that the Kremlin doesn't want a new war with Europe was supposedly the withdrawal of Russian troops (though not military equipment) from the Ukrainian border in the spring in exchange for holding the U.S.-Russian leaders’ summit and the joint decision to cooperate on strategic arms limitation or halting Iran's nuclear program.
However, according to the Financial Times, in early November, Washington provided its wide range of NATO allies with detailed intelligence on Russian preparations for the attack, which is normally reserved for America’s closest allies, like Britain. A month later, some of it, including the Russian units ready to strike, was published by The Washington Post. The report speaks of a strike that would involve 175,000 professional soldiers (100 tactical battalions) with the support of 100,000 reservists. The attack would be multi-directional, from northern and eastern Ukraine, but also from the Black Sea. It would allow the Russians to take over as much as half the country. The expected deadline for the operation: the end of January.
Such precise data has convinced Germany, France and many other U.S. allies that the invasion is very real and that it is necessary for the whole Western world to discuss joint sanctions in order to dissuade Vladimir Putin from the invasion.
"What I am doing is putting together what I believe to be the most comprehensive and meaningful set of initiatives to make it very, very difficult for Mr. Putin to go ahead," warned Joe Biden.
The comprehensive set of initiatives has not been disclosed yet, but leaks to U.S. media give some idea. The harshest would be cutting Russia off from Western financial markets. It would involve blocking Russian banks' access to the Society for Worldwide Interbank Financial Telecommunications transaction system, and preventing the Russian state from financing its debt not only in the primary, but also in the secondary market. While Russia has amassed $600 billion in foreign exchange reserves that would allow it to weather such a test for some time, experts point out that Iran has lost almost half of its exports through similar restrictions.
On Ukraine's Army Day, Ukrainian President Volodymyr Zelenskyy stated that the Ukrainian armed forces are capable of resisting any attack from Russia, as reported by Reuters.
An important element of the sanctions would be tightening the system to prevent money laundering by Russian oligarchs, says Maria Shagina from the Carnegie Moscow Center. She points out that today, Kremlin-linked tycoons are circulating funds in the world's major financial markets through countries like Latvia or Cyprus. They have deposited around $1 trillion in Western financial institutions. The threat to freeze the fund would be a powerful wake-up call to Moscow, especially because a considerable part of the Russian government does not share Putin's “obsession” with reclaiming Ukraine.
Another significant step is to limit Russia's direct investments in the West. Poland generally does not allow Russian capital, but other Western countries are far more liberal. This has allowed Russian firms to take over, for example, key suppliers for the British aircraft engine manufacturer Rolls-Royce Holdings or OAO Gazprom’s strategic gas storage facilities in Germany.
But the embargo on imports from Russian strategic companies such as RUSAL (the world's second largest aluminum producer) is more questionable. This can disrupt supply chains in the West.
That leaves Nord Stream 2. According to Axios, a few weeks ago, Chancellor Angela Merkel was trying to persuade Biden not to impose sanctions on the pipeline. But that was before the new government took effect in Berlin and before the U.S. revealed how serious the situation is.
In Washington itself, an Iowa Republican senator told Fox News that there are enough Senate members who oppose Nord Stream 2 to overturn Biden's potential veto against sanctions on the consortium that will operate the pipeline.
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