Vladimir Putin and his allies are staring down the barrel at economic reprisals after bringing Europe to the brink of war with an invasion of Ukraine.
Russia must be in no doubt that the world “walks the walk on sanctions,” said Ukrainian foreign minister Dmytro Kuleba, following the Kremlin’s choreographed recognition of two breakaway republics in the Donbas region on Monday. By acknowledging the alleged independence of the Donetsk and Luhansk People’s Republics and swiftly sending Russian troops into the disputed Ukrainian territories, Putin killed off a 2015 cease-fire agreement.
U.K. Prime Minister Boris Johnson said Russia’s deployment of so-called peacekeeper forces into Ukraine amounted to a renewed invasion of the country and all 44 million of its citizens. As a result, the government would immediately target five smaller banks in a first salvo, the largest of which is Promsvyazbank.
“By denying Ukraine’s legitimacy as a state and presenting its very existence as a mortal threat to Russia, Putin is establishing the pretext for a full-scale offensive,” he told the House of Commons on Tuesday. “We will not allow Putin to drag our continent back into a Hobbesian state of nature where aggression pays and might is right.”
President Joe Biden issued an executive order late on Monday tailored to starve separatists in Donetsk and Luhansk of access to U.S. goods, services, or capital, while EU foreign ministers will discuss today a first package of measures targeting those individuals responsible for Russia’s decision, as well as any banks financing Russian military operations in the disputed territories.
Economic reprisals included Germany halting certification of a controversial gas pipeline that is strategically important to Russia, because it bypasses transit routes through Ukraine.
“Whereas the previous government completed an analysis concluding Nord Stream 2 does not endanger the reliability of supply, I am of the conviction that the geopolitical developments compels us to reevaluate these findings,” Vice Chancellor Robert Habeck told reporters Tuesday.
The steps follow the Ukrainian president’s desperate call for action in Munich on Saturday. Volodymyr Zelenskyy voiced his frustration that even just preventively making the list of sanctions public—so Russia knows what would happen if it starts the war—did not have support among Western allies.
“What are you waiting for? We don’t need your sanctions after the bombardment starts,” Zelenskyy told the Munich Security Conference. “If you cannot even disclose what will happen to whom if the war starts, then I doubt it will be triggered after it happens.”
While this may seem understandable as sanctions are meant as a deterrent, policymakers need to be careful. Revealing what measures might be taken could conceivably embolden aggressors if the other side deems them an acceptable tradeoff once it can conduct a thorough economic analysis of the fallout.
That’s why the U.S. and its allies have been careful not to give away too much, speaking just of “swift and severe” measures. Boris Johnson called his plans “just the first barrage.”
As Western powers started drafting up targeted economic measures to penalize Putin’s pariah state and its two proxies in Ukraine, Russia’s stock market endured another rout on Tuesday.
The benchmark MOEX Blue Chip index has surrendered 15% of its value since last week’s close, with shares in state-controlled companies like energy groups Rosneft and Gazprom, airline carrier Aeroflot, and lenders VTB Bank and Sberbank among the hardest hit.
Whether punishing Russia economically will truly contribute to a de-escalation on the ground remains unclear. In an interview with Swedish newspaper Aftonbladet, Russia’s ambassador to Sweden, Viktor Tatarintsev, claimed, “We don’t give a shit” about sanctions.
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