CNAS Responds: U.S. Sanctions on Russia

With Russian troops amassing on Ukraine's borders, the United States and its allies are stepping up the pressure to deter an invasion, with sanctions playing a key role in their strategy. There are myriad ways for sanctions to be used and the Biden administration must weigh the potential impact, risks, and consequences of each path. Center for a New American Security experts weigh in on the range of options and possible outcomes for U.S. sanctions policy toward Russia.

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• Emily Kilcrease, Senior Fellow and Director, Energy, Economics and Security: Adding technology controls to the long list of potential sanctions is a clear sign that the administration is trying to up the ante in deterring Russian aggression in Ukraine. Russia knows that aggressive sanctions targeting the energy and financial sectors are likely to bite back at the United States and Europe and that this complicates efforts to impose far-reaching measures. Technology controls are a clever attempt to circumvent these dynamics, though we are in uncharted waters in determining what ripple effects they could have across complex global supply chains, particularly in the semiconductor sector, which appears a likely target.
  
  In addition to direct controls on U.S.-origin technologies that are key to Russia’s industrial sectors, the White House has signaled that it is also considering imposing novel foreign direct product rules that to date have only been used against Huawei. These rules restrict the sales of non-U.S. origin goods that are made using U.S. technology. Since the United States enjoys near dominance in the global production of semiconductor manufacturing equipment and design software, this could allow the United States to choke off the supply of semiconductors to Russia. Impacts will not be felt on day one, but these types of controls could seriously impede Russia’s technology sectors over the mid- to long-term. The administration likely looks at Huawei’s recent commercial woes as evidence that amped up use of controls on chokepoint technology can be effective.
  
  Exploiting the U.S. position in the global semiconductor value chain is likely to lead to pushback from China and pressure on U.S. allies in Asia, including the major chip-producing economies of Taiwan and South Korea, who may get caught in the cross-fire as the United States seeks to enforce any novel technology controls in the chip sector.

• Andrea Kendall-Taylor, Senior Fellow and Director, Transatlantic Security: The United States and its allies have clearly laid out the costs Putin would face for any further aggression against Ukraine. It is unclear if such a sanctions package is enough to deter Putin, especially if he is intent on pursuing his maximalist objectives—autonomy for parts of Eastern Ukraine that give Russia a veto over Ukrainian foreign policy and closing NATO’s door for Ukraine. Given the highly personalized nature of the Putin regime, it may very well be that Putin does not have access to unvarnished information and he could judge that the United States and Europe would be unwilling to implement the most severe sanctions options. Recent statements from Berlin and Hungarian Prime Minister Orban’s trip to Moscow lend credence to that view. It will also be more difficult for the United States and Europe to reach consensus on how to respond to less extreme forms of Russian escalation.
  
  Regardless of what happens in Ukraine, however, U.S.-Russia relations are on a new course. The era of working toward a stable and predictable relationship with Russia is over. The U.S. will need a new, more proactive approach—one in which sanctions will be a tool (among many) that Washington should use to deter future Russian attacks on liberal democracies and disrupt Russia’s destabilizing actions, especially the corrupt networks that Moscow uses to spread its influence and sustain its hold on power.

• Carisa Nietsche, Associate Fellow, Transatlantic Security: Recent reports indicate that the Biden administration has identified several Russian business leaders and government officials to sanction if Russia invades Ukraine. Such a move sidesteps two perceived pitfalls of U.S. sanctions regimes for our European allies. For one, targeting Russian President Vladimir Putin’s inner circle has few knock-on effects in Europe, and it avoids European concerns about U.S. extraterritoriality of sanctions regimes. Secondly, it also circumvents concerns that a U.S. sanctions regime will target the Russian people. Sanctions on elite government officials target the real perpetrators here: Putin’s inner circle who play a key role in his regime’s actions. To be successful, sanctions on Russian business leaders and government officials must be coordinated with our European allies. It’s encouraging to see the United Kingdom—a haven for Russian dirty money—considering similar measures.

• Jason Bartlett, Research Assistant, Energy, Economics, and Security: For decades, Washington has used economic statecraft tools such as sanctions to address illicit Russian activity and the Biden administration has voiced its intent to continue this policy trend. In the last 12 years, the Treasury has issued over 850 sanctions on Russian targets with the overwhelming majority (roughly 490) related to military incursions, human rights abuses, and election inference affecting Ukraine. Under the Biden administration, the Treasury has imposed 25 new designations on Russian targets pursuant to Ukraine-specific sanctions programs alone, with the remaining roughly 70 new sanctions targeting broader themes such as cybercrime, nuclear proliferation, and energy security issues. In terms of new designations, Russia currently ranks as the third most sanctioned country and the Biden administration is prepared to raise economic pressure against Moscow alongside European allies, if deemed necessary.

• Edward Fishman, Adjunct Fellow, Energy, Economics, and Security: As the world waits on Vladimir Putin's decision on whether to attack Ukraine, the West is hard at work on a sanctions package that it could levy in response. A critical difference between today's crisis and Russia's surprise 2014 annexation of Crimea is the drawn-out, months-long buildup, which is giving the United States and Europe ample time to prepare countermeasures. By all accounts, policymakers are putting that time to good use. If Putin orders an invasion, the United States appears poised—at a minimum—to impose full-blocking sanctions on a handful of major Russian banks and slap sweeping controls on technology exports to Russia. Meanwhile, after initial signs of tentativeness, the European Union has steeled its nerves and is reportedly weighing sanctions on gas exploration and production in Russia. And the United Kingdom—now an independent sanctions actor in the post-Brexit world—is also assembling tough measures, including sanctions against Russian oligarchs with property holdings in Britain.
  
  By itself, cutting off the largest Russian banks from the U.S. financial system would be a major blow to Putin's economy, causing far more serious impacts than any other sanctions hitherto imposed on Russia. Part of the reason the Biden administration is ready to go this far is that it has had time to study the likely effects and devise policies to mitigate unintended consequences. The question now is whether all this preparation is enough to sway Putin's calculus. There is little question that U.S., EU, and UK sanctions—if enacted—would impose devastating damage on Russia's economy. But is Putin weighing that damage in a clear-headed manner? Does he know what could be in store for Russia's economy, or is he overconfident after years of stagnant sanctions during the Trump era? These are some of the known unknowns that will determine whether the West's deterrence effort succeeds or fails.

• Jim Townsend, Adjunct Senior Fellow, Transatlantic Security: Regardless of which path the Russians choose to take in the coming weeks—diplomacy or war—the West finds itself in a policy vacuum when it comes to dealing with a Russia on the march. NATO and our allies need to begin planning for “the day after Ukraine.” What should a tough and clear-eyed policy towards Russia look like? Is it back to George Kennan and containment? Do we take a page from the Ostpolitik playbook or the détente of the 1970s? Certainly the Russia reset button needs to be retired to the Smithsonian along with the NATO application discussed in the heady post–Cold War days of the early 1990s. We need a new “long telegram” written in the bowels of an embassy somewhere in Europe from the next George Kennan, or a new X article authored in a think tank for Foreign Affairs, to quickly get us thinking about how to avoid chasing Putin around Europe’s periphery from crisis to crisis, trying and failing to deter Putin’s reconstruction of a rump Soviet empire. But one thing is clear, the new approach by the West must not be steeped in nostalgia, wishful thinking or policymaking on the cheap. By whatever name, the new strategy to address a Russia on the march will require a major effort to rebuild deterrence in Europe based on a strong force posture, which will include additional U.S. assets. However, unlike after the Cold War’s end, the bulk of the heavy lifting of European security must be shouldered by our allies. The United States will be there too, but we have unfinished business to attend to in the Indo-Pacific, where most of our European allies are not present. But they must be present and well-armed in the new Europe, shouldering the burden of deterring a new war in Europe.

• Rachel Ziemba, Adjunct Senior Fellow, Energy, Economics, and Security: The United States and EU seem to be aligned on freezing Nord Stream 2 and avoiding measures that would hurt near-term oil and gas export volumes. Instead, tightening loopholes on financing for state-owned energy companies (adding to those imposed in 2014) and export controls for technology associated with new energy projects are likely and are aimed at reducing future export potential. The involvement of Japanese and European allies in some LNG projects suggests that the focus will be on new projects. Collectively these measures, will amplify the impact of EU environmental policies and are likely to raise the costs of Russian energy projects and increase their reliance on Chinese equipment and funding.
  
  The urgency of potential conflict and risk of disruption has focused attention on the tight energy market fundamentals, while higher prices in Europe are attracting Asia-bound LNG cargos, reducing the risk of further near-term shortages. The greater energy coordination between the United States and its allies is a welcome step, but should be aligned with longer-term interests to reduce future vulnerability. Rather than relying solely on quick fixes like diverting cargos, strategic reserve releases, and calling on OPEC+ (including Russia) to produce more, the United States will need to provide more clarity on its energy regulation and aim to adjust demand. (Increasing alignment between the United States and Western allies on carbon trade, investment measures and efforts to shape global standards around hydrogen production, and carbon capture technology may avoid future crises and help increase the quality of growth.)
  
  Beyond energy, Russians and foreign investors have belatedly begun to price in the impacts of a new sanctions package, with capital outflows weakening the RUB and Russian assets, an outcome the United States and EU have sought to channel to amplify the deterrence effect. While Russia has sufficient fiscal space to avoid issuing debt if they need to this year and potentially next, doing so will come at a cost. Russia continues to forego growth and investment to strengthen its resilience to sanctions.
  
• Daniel Silverberg, Adjunct Senior Fellow: A crisis catalyzes action, and the Senate is rising to the challenge by coalescing around a Sen. Menendez-driven sanctions package that would spell out in exacting detail the financial consequences should Putin invade Ukraine. However, significant questions remain regarding timing and the trigger for action, including whether Congress should pass a bill before Putin invades to deter aggression (as many Republicans seek) or postpone action until Putin actually invades Ukraine, a position pushed by the Europeans. Likewise, members are questioning whether the most devastating sanctions should be frontloaded or whether the bill should have a ramp-up period to give some runway to the Administration to escalate sanctions. Finally, every Administration seeks maximum flexibility on sanctions implementation, and the current bill draft requires a presidential determination regarding Russian action before sanctions are imposed, essentially giving the White House a veto over sanctions. Given continued frustration among Republicans over the White House’s refusal to impose sanctions on Nordstream2, this is an issue for negotiation. Bottom line, although members are moving closer to a deal, there remain issues to resolve both in the Senate and the House.