Ukraine – First wave of sanctions fails to deter Moscow

Over the past few days, practically everyone in the public media has become a Ukraine sanctions expert, regardless of actual experience in this field.  The… Read More »

Ukraine – First wave of sanctions fails to deter Moscow

Over the past few days, practically everyone in the public media has become a Ukraine sanctions expert, regardless of actual experience in this field.  The one thing most all agree on at this point is that the first wave of coordinated western sanctions, with many early measures not fully in place, completely failed to deter Moscow from further escalation.  

Those analysts and politicians who argued that the first wave of finely calibrated sanctions would be insufficient to change Moscow’s course have been proven correct, unfortunately, with some arguing the point that the relatively small package of sanctions in the first phase might have even emboldened Putin.  That’s one for the historians. 

What to expect now?

At this point we can expect continuing new announcements of additional escalating retaliatory sanctions from western leaders with great fanfare including possible summits.  They will be looking to inflict as much pain as possible without closing vital trade links and restricting “humanitarian” activities.  The bottom line is that after a few weeks all major western governments will be closely coordinating new sets of tougher sanctions routinely as loopholes are detected and closed, much as was done against Serbia-Montenegro under the UN and OSCE aegis almost three decades ago with Washington in the lead. We have seen this all before, but this time Russia’s Security Council veto will prevent coordinated UN cover for sanctions. 

First EU measures, the so-called “small package”

As military action begins, the real question to be asked regarding frenzied activity in Brussels is whether the EU or NATO are the more relevant organization to be taking the lead in the coming days. There are times when sanctions mean next to nothing, and those occasions are precisely when major military engagements are ongoing.

The EU was able to announce its first wave of sanctions on February 23, with much more being hurriedly prepared for an emergency announcement now that Russian troops are on the move. 

The first package includes “targeted restrictive measures” against 351 Duma members (for voting to recognize the breakaway regions) and 27 high profile individuals and entities.  These restrictive measures include an asset freeze and a prohibition on making funds available to the listed individuals and entities. A travel ban applicable to the listed persons prevents these from entering or transiting through EU territory.  

Full details on the sanctioned entities here Publications Office (

The EU Council also decided on February 23 to introduce a sectoral prohibition to finance the Russian Federation, its government, and Central Bank. The EU Council also agreed to introduce an import ban on goods from the non-government-controlled areas of the Donetsk and Luhansk oblasts and restrictions on trade and investments related to certain economic sectors.

Germany’s February 22 action in regard to halting the certification of the Nord-Stream II pipeline, effectively freezing the project with construction largely completed, was perhaps the most significant action taken by any EU member state to date. But the certification freeze is not equivalent to an order to tear the structure down or to repurpose it, a message not lost on Moscow.

UK:  Actually closing the “London laundromat?” 

Russian oligarchs’ use of financial institutions and services based in London has been so extensive in recent years that the name “London laundromat” is now widely accepted.  In the first days of the week the initial tranche of UK measures announced by Prime Minister Boris Johnson earned substantial scorn for being seen as relatively weak, making these steps ideal fodder for extended parliamentary criticism. In response, Johnson argued that a much more significant set of escalating “retaliatory” sanctions is being held in reserve.  

The first phase of UK measures target five Russian banks – Rossiya, IS Bank, General Bank, Promsvyazbank and the Black Sea Bank.

The UK will also sanction three “very high net worth” individuals: Gennady Timchenko, Boris Rotenberg and Igor Rotenberg who will have their U.K. assets frozen and be banned from traveling to the country. Additionally, all U.K. individuals and entities will also be barred from conducting transactions with them. 

The UK’s Foreign Office later announced the UK would also sanction Russian parliamentarians who voted to recognize the two rebel-held areas of Ukraine (Donetsk and Luhansk) as “independent” last week and that in the coming weeks British firms would also be prevented from doing business in those two breakaway areas – similar to the policy applied to Crimea.

US sanctions to be dialed up in the second phase

Much as its allies have done, the first phase of US sanctions announced by President Joe Biden on February 22 targets individuals, banks, Russian sovereign debt as well as the Nord Stream 2 pipeline project.  Washington, however, has long adopted a tougher philosophical line on sanctions, closer in scope to the call for “severe sanctions” from Ukrainian Foreign Minister Dmytro Kuleba, made in both Washington and New York this week. 

In this phase, Washington announced measures against VEB and Promsvyazbank, two of Russia’s largest financial institutions, which support economic development and military projects. Washington will freeze their assets in the US, prohibit US individuals and businesses from entering any transactions, work to shut them out of the global financial system and foreclose their access to the dollar.

Among the Russian individuals just hit with sanctions are Denis Aleksandrovich Bortnikov, the son of Federal Security Service director Aleksandr Vasilievich Bortnikov; Petr Fradkov, the chair and chief executive of Promsvyazbank; and Vladimir Kiriyenko, a prominent Russian business executive and the son of a senior Putin official.   

In making the announcement, Biden pledged his administration was using “every tool at our disposal” to limit the impact of sanctions on domestic gasoline prices, acknowledging that Americans will likely see rising prices at the pump in the coming months as global supplies tighten.  Biden has been urged to cut Russia off from Swift, the international payments network but is understood to be keeping that option in reserve for the time being.

On February 23, the US State Department announced it was formally terminating the existing 2021 waiver and moving to impose sanctions on Nord Stream 2 AG (NS2AG), its CEO Matthias Warnig, and NS2AG’s corporate officers.  Washington reiterated that this decision was in line with the United States’ longstanding opposition to the Nord Stream 2 pipeline as a Russian geopolitical project and the President’s commitment that Nord Stream 2 would not move forward following the beginning of Russia’s invasion of Ukraine.

Russia blows the early sanctions off

Russia is releasing figures to make it appear as if the sanctions are a mere annoyance in the early phase.  Russia’s finance ministry claimed on February 23 it had enough money available – more than 4.5 trillion rubles (around $56 billion) – to ensure that it can be flexible in borrowing money and selling new government debt. In the coming weeks, Russian government bond auctions are to be restricted and will be adjusted to factor in the market situation, it added. The ministry’s officially reported reserves are more than double the planned net borrowing for 2022 of 2.2 trillion rubles ($27 billion).