Washington has made it clear in the past few days that Russian President Vladimir Putin will have to reckon with painful sanctions in the event of an invasion of Ukraine.
Measures are under discussion that could hit the Russian economy much harder than those that have been imposed since the Russian annexation of the Ukrainian Crimea and Russia's intervention in eastern Ukraine in 2014, and to which Russian companies have largely adapted in the meantime.
Katharina Wagner
Business correspondent for Russia and the CIS based in Moscow.
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The most momentous, so-called “nuclear” option is the decoupling of Russia from the international payment service provider SWIFT, which is used to process global financial transactions. Russia has been trying to develop an alternative since 2014, and if Western service providers such as Visa and Mastercard were switched off, it could process intra-Russian transactions via its own credit card system "Mir" and the Russian SWIFT counterpart SPFS, which so far only covers around a fifth of the domestic Russian Payment transactions is available. However, the Russian system is not suitable for international money orders because too few banks are involved.
Should Russia be cut off from SWIFT, this would also have consequences for Western countries, because Moscow uses the system for a large part of its international oil and gas business.
Germany covers more than half of its gas consumption from Russia, while America imported 7 percent of its oil from Russia in 2020.
American and German banks in particular often interact with Russian banks via SWIFT.
Special role for Nord Stream 2
Because of these close connections, Maria Shagina, an expert on sanctions against Russia at the University of Zurich, considers this option to be unlikely: Russia's networking with other markets has so far acted as a “protective shield” against such drastic sanctions and will probably continue to do so. In fact, it is noticeable that so far there has been no mention of any restriction on oil and gas exports from Russia. But Washington has made it clear that the completed but not yet certified Baltic Sea pipeline Nord Stream 2 must not be put into operation in the event of a Russian invasion of Ukraine: If Putin wants to see how gas flows through the pipeline, he should risk an invasion not come in, Biden's security adviser Jake Sullivan said on Tuesday.One is on the topic in talks with the outgoing and the new federal government.
The state-controlled energy company Gazprom, which is behind the pipeline, could also become the target of new sanctions. The company, which is making record profits this year in view of the high gas prices worldwide, has only been hit selectively by the measures taken so far. Financing options in Western financial markets were restricted, individual subsidiaries and representatives were placed on sanction lists, but not the group as a whole.
A similar attempt with a globally significant company failed in 2018: At that time, Washington imposed penalties on the world's second largest Russian aluminum producer, Rusal, which led to a 30 percent jump in the price of aluminum.
Rusal was then removed from the list, but the Kremlin oligarch Oleg Deripaska formally had to surrender control of his company.
Pressure on the banks
Nevertheless, the US and the EU could seriously damage the large Russian corporations by further restricting their financing options in the West, says expert Shagina.
Although the dependence of Russian companies on Western money has decreased since 2014, the financing conditions in the West are still much better than those in Asian or Arab countries.
As a further measure, Washington is apparently considering a ban on the exchange of currencies from rubles into dollars, euros and pounds sterling. It is still unclear which actors such a ban will apply to and what effect it would have. The ruble is likely to depreciate significantly, but it does not play a major role in international trade. Russia has also been preparing for such a scenario since 2014 and slowly switched its currency reserves to other currencies.
There are no more dollars in Russia's National Welfare Fund, but 45 percent are denominated in euros and pounds.
In any case, Russia is in a much better macroeconomic position than in 2014, when sanctions and the drop in the price of oil triggered a severe economic crisis: the national debt is low, the reserves are well filled, and the ruble exchange rate, which has been released since the end of 2014, can cushion shocks.
Such a shock could be further measures against Russian government bonds.
American financial institutions are already banned from trading them on the primary market, and the proportion of foreign investors has continued to decline since 2014.
But should Western investors be forced to drop the government bonds in circulation on the secondary market, this should also have a heavy impact on the ruble rate.
New measures against Russian banks could also hit the entire Russian economy hard.
This recovered quickly after the first shock of the corona pandemic;
growth of a good 4 percent is expected for this year.
At the same time, the central bank is fighting against rising inflation, which was almost 9 percent in November, by continuously raising the key interest rate.
In view of the declining and stagnating real disposable income for years, inflation is already causing great resentment in society.
New, noticeable sanctions are likely to intensify this.