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The American sanctions against Russia in a nutshell

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America’s latest round of sanctions on Russia are having a devastating impact.

Here’s an explainer on what the sanctions are, how they work and what they are intended to achieve.

Do sanctions actually work? What exactly is Washington’s end game here?

The American sanctions against Russia in a nutshell

1) Russia’s 2008 invasion of Georgia and 2014 annexation of Crimea

Since the fall of the Soviet Union, Russian power has waned.

But Russia still has over 6,000 nuclear warheads and a standing army of 900,000 and 2 million reservists. Moscow also maintains huge amounts of materiel and weapons systems, including its recently-used hypersonic missile the Kinzhal.

In 2008, Russia under Vladimir Putin responded to Georgia’s attempt to retake the breakaway regions of Abkhazia and South Ossetia by attacking Georgia and then recognizing the independence of both regions.

In 2014, Russia also backed pro-Russian separatists in the east of Ukraine, contributing to Ukraine’s bloody civil war. Moscow then responded to the overthrow of Ukraine’s pro-Russian leader Viktor Yanukovych by rapidly annexing Ukraine’s Crimea peninsula and absorbing it into the Russian federation.

Tensions have steadily grown between Russia and the West due to other factors as well, including Russia’s bloody intervention into the Syrian Civil War in 2015.

The 2008 war resulted in sanctions by the United States Government (USG) under Barack Obama, while the 2014 annexation and Ukrainian civil war also resulted in significant sanctions issued by the North Atlantic Treaty Organization (NATO), whose EU member states had been more reluctant to sanction Russia previously due to their reliance on Russian energy and the ongoing discussion over the Nord Stream 2 Pipeline from Russia to the EU.

2) What American sanctions were already imposed on Russia?

Russia’s February 24 invasion of Ukraine has resulted in the toughest sanctions yet. But it’s also important to remember Russia was already being heavily sanctioned by the USG and many of its upper elite and Putin-connected figures have already been running away from targeted sanctions.

Following the events of 2014 including the annexation of Crimea and support for eastern Ukrainian separatists, Obama hit Russia and many of its government and private companies with punishing sanctions that cut into some of its ability to access the world market.

This included banning various Russian government officials, high-ranking oil executives from doing any American-related business by their corporations and barring numerous financial transactions and liberties previously enjoyed by Russian banks and by foreign banks doing business with Russian individuals and entities.

In the summer of 2014, the USG banned major Russian gas giants Rosneft and Novatek from any involvement with US interests as well as the Russian banks Gazprombank and Vnesheconombank, isolating Russia’s financial industry and ratcheting up the tension.

The US later extended the sanctions to Russia’s main bank Sberbank, its top weapons companies and its main energy producers, hitting their bottom line by stopping their ability to access large tranches of the US cash flows and foreign loans.

The existing sanctions on Russia pushed it closer to anti-American allies like Iran and China, but did not fundamentally disrupt its ability to profit from its oil and gas sector.

Nonetheless, ordinary Russians were also largely able to continue earning income and having enough to eat during previous sanctions regimes from teh West.

That is now changing with the latest round of sanctions.

3) Washington’s February 2022 sanctions against Russia

Leading up to Russia’s invasion in late February, US President Joe Biden repeatedly threatened “consequences” that would surpass all previous ones. If Vladimir Putin went ahead and ordered his forces into Ukraine, Biden said he had punishments ready that would bring Russia to its knees.

Biden made good on the threat after Putin ordered forces into action, signing off on the Russian Harmful Foreign Activities Sanctions Regulations, issued by the Office of Foreign Assets Control (OFAC) on February 28 as well as five other sanctions regimes against Moscow.

As in the past, these sanctions are intended to cripple Russia’s leadership but more broadly to bring down its currency and economy in order to end its ability to effectively wage war. So far they have served to send its people into panic and cripple its logistics and supply chain.

There have been six different sanctions packages that Putin has been hit with by Biden since the end of February. They are mainly crafted to destroy Russia’s financial sector, state-owned companies and leading elites, particularly its infamous oligarchs.

The most dramatic part of the latest sanctions is that Russia’s Central Bank can no longer have any dealings with American citizens or any assets held in US territory or done in US dollars. It effectively freezes Russia’s main bank out of large areas of the world economy and makes much of its foreign reserves temporarily worthless.

This measure has the power to collapse the entire Russian economy. It is equivalent to kicking Russia out of the modern world economy and trade system.

Putin has called it equivalent to a declaration of war.

4) ‘Severe economic costs’

As the US Treasury notes, the latest round of sanctions are broad and intended to have a severe effect on Russia’s economy.

The Treasury refers to the OFAC-approved sanctions as “expansive” and says they include “severe economic costs that will have both immediate and long-term effects on the Russian economy and financial system.”

Russia’s biggest financial institutions and public and private companies are kneecapped and unable to access much of the world’s financial infrastructure.

According US Treasury Secretary and former head of the Federal Reserve Janet Yellen,

“We are united in our efforts to hold Russia accountable for its further invasion of Ukraine while mitigating impacts to Americans and our partners.

If necessary, we are prepared to impose further costs on Russia in response to its egregious actions.”

Essentially, Treasury’s actions starve Russia of access to the American dollar and any markets in which US dollars are required to do trade and swap assets.

They punish the Russian economy as a whole, by crippling its foundations and ability to utilize the world’s financial systems. This hurts the ordinary people and Russian businesses far more than sheltered Russian elites who can rapidly move assets out of country and pursue legal avenues to hide money in tax havens and other forms around the world.

5) The devastating Russian Central Bank sanctions

The American freezing of Russia’s Central Bank foreign reserves destroyed more than half the country’s access to foreign exchange (FX) reserves which they rely on to power their economy.

Basically, all Russian-linked money in Western Central Banks like the Federal Reserve is now unavailable to them. Russia’s remaining 40% or so of reserves in gold are also mainly useless, since they can’t sell them for USD or Euros and selling them to China wouldn’t yield much liquidity.

Russia’s currently isolated economic position means that they are economically isolated from the nations with a national currency that’s been hit by a possibly fatal kill shot.

The basic point is that the freezing of Russia’s Central Bank is a declaration of full economic war and a clear line in the sand telling Russia it will be squeezed to death economically if it doesn’t do what the West says.

This is also a huge step towards ending  the current financial system as we know it.

As Mike Dolan writes for Reuters:

“The dramatic freeze of the Russian central bank overseas assets in response to Moscow’s invasion of Ukraine may now question just why countries build foreign currency reserves at all.”

For now the status quo continues, and the US petro dollar retains its dominant position, but for how long?

As China moves further from trusting the US and countries like Saudi Arabia begin to float the idea of accepting Chinese currency CNY for oil, the US dollar’s world reserve status is less stable than its ever been.

6) Crushing Russia’s supply lines

US sanctions backed by NATO and the EU have also left Russia’s ruble currency in complete collapse, losing a large amount of its value and now worth only about 1 cent US per ruble.

Russia’s banks failed in the late 1980s and people are scared of that happening again, but the shit is really going to hit the fan as Russia’s supply lines fall down.

Grocery stores are already half empty in a lot of Russian towns and cities, and the country is set for massively high unemployment, wartime conditions and empty shelves for almost all products.

This won’t be likely to stop Russia’s war efforts. What it will do is collapse their economy and ramp up the government’s militarism as it is backed fully into a corner.

Some experts hope that Russia will feel so pressured it returns to the bargaining table in exchange for its money being unfrozen, although that’s not very likely.

One thing is for certain:

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Ordinary Russians will suffer and die from the sanctions. The symbolic departure of huge American multinational corporations like McDonalds may also seem irrelevant, but is a symbolic sign of Russia returning to its Soviet-like isolation.

The main difference is that this time Russia doesn’t have an army of allies and a community of nations backing it up, only a few closer allies like Belarus and Kazakhstan.

7) Keep in mind the US record on sanctions

It’s crucial to remember that the imaginary “morality” of Western governments is intensely hypocritical and false.

Whenever the USG or other entities are telling you that severe sanctions and punishments against another country are justified, look to the record.

The USG has routinely used sanctions to punish and destroy governments who are acting in interests contrary to the Anglo-American and Federal Reserve-run international financial system. If you don’t play ball, the bat gets turned around and used on you until you’re out of the game for good.

It’s the attitude that violence and harming innocent people is just fine if it’s in the service of a supposedly noble objective, which is, ironically, exactly the attitude of Vladimir Putin that the West so claims to be “honorably” opposed to.

President Bill Clinton’s Secretary of State Madeleine Albright famously said that sanctions on Iraq in the 1990s which are estimated to have starved to death and killed 500,000 children were “worth it.”

Watching this absolute ghoul of a woman arrogantly dismiss the holocaust of half a million kids from lack of food and medicine  should be enough to show anyone just how far these kinds of people are willing to go.

Just remember, Albright was very concerned about “fascism” from President Donald Trump in the past few years. She also wanted to make sure refugees from the Middle East were treated with compassion.

Yeah, right…

8) Bullying a bully

Putin rose to power by building savvy alliances, lying, stealing and maneuvering through the halls of power.

He made friends with the right wealthy allies and then betrayed the right ones at the right time to get even more powerful.

He also solidified his grip on Russia’s spies, security forces and military as he continued his multi-decade reign.

Putin is a bully, clearly.

There have been far worse, certainly, but Putin is at least continuing in the autocratic tradition.

In the past, there were people like Kim Jong-un of North Korea, Saddam Hussein and other dictators who the US claimed they were also stopping with sanctions.

But these sanctions didn’t stop autocratic leaders, they just enraged them and left their people starving and desperate.

North Korea today is more dangerous than ever, partly as a result of US sanctions starving its people and the government using the sanctions as an excuse to funnel all possible money into their nuclear program and military.

It destroyed North Korea’s society, not their military. And that’s of the key dangers of sanctions.

As Barbara Oegg and Kimberly Elliott note in an analysis done after Russia’s 2008 invasion of Georgia:

“It is hard to bully a bully with economic measures. The evidence from our case studies suggests that autocratic regimes are less susceptible to economic pressure than democracies.”

9) Russia’s banks vs. Russia’s people

Sanctions against autocratic governments can often look good on the surface.

After all, if you’re just hitting the rich banks and the inner circle of the leader and richest companies, what’s the issue?

Everything will quickly crumble down and the good guys will win…right?

Not at all.

If there’s one thing rich companies are good at it’s hiding money and transforming assets. They’re also good at surviving crises and getting government bailouts and guarantees.

There’s no reason that hurting Russia’s richest will only hurt the upper classes or the government.

It will filter down to all classes of society and fuel desperation and violence among the people.

The idea that it would lead to a widescale revolt against Putin or overthrow of his government is also naive.

Sanctions haven’t succeeded in doing that before. They’ve generally only strengthened the narrative of authoritarian leaders who point to them as proof of why the enemy needs to be fought tooth and nail.

10) Will the sanctions work to stop Putin’s war?

The short answer is probably not.

What the sanctions will do is slowly crush the Russian economy and Russia’s connection with the rest of the world, intensifying the war fever and the desperation of its people.

Attempts to economically sanction and destroy Germany from the international financial system during World War Two only strengthened Adolph Hitler’s hold on the population.

Isolation from the world’s nations by the late 1930s only amplified the mentality of all-or-nothing that gripped Germany after its economy transitioned from actual national socialism under Hjalmar Schacht to total war under Herman Goering.

As Oliver Gordon put it earlier this month at Energy Monitor:

“The sanctions are unlikely to deter Putin from his bloody campaign in Ukraine but will slowly wear down the Russian economy.”

Innocent Russians are already suffering a lot from the sanctions. Russian businesses are shutting down and battening the hatches.

Meanwhile, Russia’s oligarchs are making sure their Swiss accounts are all in order and that they still have enough caviar in stock.

This isn’t going to hurt Putin and his friends. It’s going to hurt the people who are already losing sons in the disastrous war.

The bottom line

The sanctions against Russia are causing some oligarchs to flee the country and abandon Putin.

They’re causing others to move closer and embrace him even further.

One thing the sanctions aren’t doing is stopping the war on Ukraine, in fact it appears to be getting even worse.

The mainstream corporate media in the West is automatically referring to these sanctions as a noble and good thing, but when did we all reach that conclusion?

The sanctions will lead Russians back to the breadlines reminiscent of the USSR, but they’re not crippling Russia’s core of resource-fueled military power.

The further that they are isolated from the international financial community, the more Russia’s government will feel emboldened to continue its bloody assault on Ukraine and turn a blind eye to the mountain civilian casualties.

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