The U.S. State and Treasury departments issued what they called a "sweeping" set of sanctions against Russia and its financial backers on June 12, in the latest move to try and degrade Moscow's wartime economy.
Western countries have imposed extensive economic restrictions against Moscow over its full-scale invasion of Ukraine, seeking to curb its state revenue and prevent it from obtaining key technologies needed for the war effort.
More than two years into its war, it is unclear if the measures have had their desired effect. Russia has increasingly mobilized its economy to support its war, and has proved resourceful in strengthening new economic partnerships and trade routes.
Despite sanctions, Russia has maintained its ability to do business with the West by circumventing restrictions through third-party countries and companies.
The new sanctions aim to strike directly at the limited international financial connections that Russia has left.
"Russia's war economy is deeply isolated from the international financial system, leaving the Kremlin's military desperate for access to the outside world," said Treasury Secretary Janet Yellen.
"Today's actions strike at their remaining avenues for international materials and equipment, including their reliance on critical supplies from third countries."
The 'sweeping aim' of the new sanctions
More than new 300 new sanctions were introduced between the State Department and Treasury, impacting individuals and companies across a wide swathe of the world.
The sanctions encompass a broad cross-section of the support base for Russia's war machine, including Russia's natural resource sector, export capacity, financial institutions, as well as foreign individuals and companies who help Russia evade sanctions and continue to funnel money and dual-use goods into the country.
- Secondary sanctions for financial institutions assisting Russia, foreign locations of Russian banks
The sanctions will levy penalties on individuals or companies who do business with many of Russia's leading banks and financial institutions. The measure builds upon an executive order signed by President Joe Biden in December 2023, which established that even companies that inadvertently did business with Russia could be subject to sanctions.
The U.S. Commerce Department sent letters to at least 20 American companies in March, urging them to stop the shipment of materials abroad that could potentially end up in Russian weapons. The warnings did not publicly say what the possible consequences could be if the shipments continued.
The Treasury's new sanctions also aim to crack down on Russian banks and financial institutions that have sought to hide their activity by relocating abroad under an alias.
- Sanctions against "Russian financial infrastructure"
The new measures impact some of Russia's leading trading markets, clearing agents, and insurance companies, including the Moscow Exchange, the country's main trading hub.
Within hours of the announcement, the Moscow Exchange said it would suspend the trade of dollars and euros via its central exchange.
"Companies and individuals can continue to buy and sell U.S. dollars and euros through Russian banks," a statement by the Moscow Exchange said. "All funds in U.S. dollars and euros in the accounts and deposits of citizens and companies remain safe."
Russia's Central Bank then said on June 13 that it had ceased the trade of the Hong Kong dollar as well.
The Moscow Stock Exchange index dropped by close to 4% on the morning of June 13, and the exchange's shares tumbled by 15%.
Russian Telegram channels and other social media posts claimed of long lines at foreign exchange points around the country.
- Software, IT restrictions
The new sanctions will also aim to "disrupt the Russian military-industrial base's reliance on foreign IT systems," prohibiting individuals or companies from providing any kind of consulting, design, IT support, or cloud management to Russia.
The measures, which will take effect in September, exclude civil society and telecommunications organizations.
- Natural resources, both present and future
Sanctions have long targeted Russia's natural resource sector, one of the backbones of Russia's economy, but the new measures extend sanctions toward projects that are currently under construction or planned for the future.
The measures include three future Russian Liquified Natural Gas (LNG) projects—Obsky LNG, Arctic LNG 1, and Arctic LNG 3.
- "Domestic war economy"
The measures expand existing sanctions against Russia's domestic economy, adding more than 100 companies involved in a variety of industries that directly support or otherwise contribute financially to Russia's war machine.
- Sanctions evasion
Despite the 13 rounds of EU sanctions and numerous measures from the U.S., sanctions evasion, often through the use of third-party countries and companies, has remained a recurring problem.
The new measures expand sanctions to include around 90 companies and individuals involved in circumventing existing sanctions.
While some of the named companies and individuals are located in Russia, others are based in China, Kazakhstan, Turkey, the United Arab Emirates, Serbia, Kyrgyzstan, and other countries that have been previously identified as an important conduit of money and dual-use technologies.
Will it make a difference?
In terms of individuals and companies, Russia is the most sanctioned country in the world, far surpassing Iran, North Korea, Syria, and other pariah nations.
Yet Russia's economy has remained more resilient than expected and its military output has surpassed the West, bolstered by new partnerships with Iran and North Korea.
Beyond the drop in the Moscow Exchange, the ruble's value against the dollar tumbled. Unverified reports spread on social media that customers could not log into Rosbank, one of the leading Russian banks. As of 1:00 p.m. local time, Rosbank's website was still down.
"Given the loud whines of the Russian regime's top propagandists, these measures strike right where it hurts," said Foreign Minister Dmytro Kuleba.
Edward Fishman, a nonresident senior fellow at the Atlantic Council, said that the new measures have the potential to be "a very big deal," as "most banks will likely conclude that any Russian business is too risky."
But previous measures by the U.S. and the EU have attempted the same thing.
Biden's November 2023 executive order aimed to transform the nature of sanctions against Russian financial institutions, putting the onus on Western companies and individuals to preemptively avoid doing any business in Russia, because they could face sanctions even from unwitting, third-party connections.
While some Chinese banks since have suspended their operations in Russia, others continued.
The devaluation of the ruble, which rose to 91.5 rubles to the dollar from 89.1 overnight, paled in comparison to the plunge the currency faced in the aftermath of the full-scale invasion. The value of the ruble against the dollar went from 75 in mid-February 2022 to a height of 134 in March 2022, before stabilizing in the summer.
Peter Harrell, who served as White House senior director for international economics in 2021 and 2022, said the new sanctions were a "paradigm shift" that could lead to a "major retreat" of the remaining non-Western banks that still do business with Russia.
After the measures were announced, the Russian state-run media outlet RIA Novosti published an interview on June 13 with a Chinese economics expert, who conceded that the sanctions would have a "certain impact on the Russian economy," but claimed that it would not be "serious."
The Chinese Foreign Ministry called the sanctions "illegal" and said it would protect the interests of Chinese citizens and companies.
The mid to long-term impact remains to be seen, but if the measures are able to succeed in scaring off foreign banks, it could "complicate the flow of goods from countries that are continuing to trade with Russia," Harrell said.
Igor Kossov
