Explainer: Just how hard could U.S. sanctions hit Russia?

WASHINGTON — With Russia’s military attacking across Ukraine, President Joe Biden is expected to announce on Thursday at least some of the toughest sanctions and financial penalties that the United States, the world’s biggest economy, can muster in response.

Biden, for weeks, has promised “swift and severe costs” if Russian forces moved into Ukraine, and he made clear that the U.S. would go after Russia financially, not militarily.

Biden administration officials have described measures that would send Russia’s ruble crashing, isolate Moscow from the world financial system and possibly drive the country into recession.

They also have said minimizing the damage to European economies is a primary concern.

A look at some of the steps being considered and their potential impact:

Most likely punishments

Strongly in the mix are penalties targeting Russia’s biggest state banks and new export controls that would starve the country’s industries and military of American semiconductors and other high-tech products.

U.S. officials have appeared less certain about cutting Russia off from the international financial system and from dollar transactions, partly out of concern about the spillover economic effects at home and in Europe.

Such steps include banning Russia from the SWIFT financial system that moves money from bank to bank around the world, and shutting down the Kremlin’s ability to do business in dollars.

Those would go far in severing Russia from global financial systems, and, with the dollar-clearing ban, stymie even the most routine business transactions.

Cutting off high-tech exports

U.S. export controls could deprive Russian industries and the military of the high-tech components that help warplanes and passenger jets fly and make smartphones smart, along with other software and advanced electronic gear that make the modern world run.

The U.S. response could add Russia to the most restrictive group of countries for export control purposes, joining Cuba, Iran, North Korea and Syria.

That would limit Russia’s ability to obtain integrated circuits and products containing integrated circuits, due to the global dominance of U.S. software, technology and equipment.

The impact could extend to aircraft avionics, machine tools, smartphones, game consoles, tablets and televisions.

Sanctions could target critical Russian industry, including its defense and civil aviation sectors, which would undermine Russia’s high-tech ambitions, whether in artificial intelligence or quantum computing.

U.S. export restrictions would risk motivating businesses to look for alternatives elsewhere, including China.

Targeting Russia’s oligarchs, finances

An administration official briefing reporters earlier this week said the U.S. was ready to impose sanctions against Russia’s biggest banks, including state-owned SberBank and VTB.

They combine to almost $750 billion in assets, the U.S. said, which is more than half of the entire total in Russia.

U.S. sanctions imposed this week targeted two banks close to the Kremlin and Russia’s military, with measures that included freezing all their assets that the U.S. could reach.

Another step already taken aims to cut off the Russian government, its central bank and its sovereign wealth funds from U.S. financing.

That action, and a similar one by Europeans, means Russia no longer can raise money from the U.S. and Europe, and its new debt can no longer trade in U.S. or European markets.

Moscow’s stock exchange briefly suspended trading on all its markets on Thursday morning.

After trading resumed, the ruble-denominated MOEX stock index tumbled more than 20% and the dollar-denominated RTS index plunged by more than one-third.

Russia’s abundant currency reserves, coupled with the current high prices the country is getting for its petroleum and its comparatively low debt, would help Russia weather sanctions over the short term, said Oleg Ignatov, a senior Russia analyst with the International Crisis Group.

Over the long run, Ignatov said, the kind of punishment promised by Biden would deepen Russia’s economic stagnation and “be felt by ordinary Russians in a way that most have not yet had to suffer the cost of this conflict.”

Sanctions are imposed on individuals listed on a Specially Designated Nationals and Blocked Persons List through the Treasury Department’s Office of Foreign Assets Control.

The list includes individuals and companies owned, controlled by or acting on behalf of a targeted country. Traditionally, their assets will be blocked and the U.S. is almost completely prohibited from dealing with those on the list.

Individuals, groups, companies and even aircraft can be given this designation.

Sanctions against specific sectors are an option, too. They could apply to specific Russian companies – in energy, finance, technology and defense, for example – and limit some trade, but permit some transactions.

Western sanctions issued when Russia invaded and annexed Crimea in 2014 included limits on trade, the blocking of assets under American jurisdiction and restricted access to the U.S. financial system.

Those are maintained to this day on at least 735 individuals, entities and vessels, according to the Office of Foreign Assets Control.

SWIFT financial system

For the U.S. and Europe, cutting Russia out of the SWIFT financial system, which shuffles money from bank to bank around the globe, would be one of the toughest financial steps, damaging Russia’s economy immediately and in the long term.

The move could cut Russia off from most international financial transactions, including international profits from oil and gas production, which in all accounts for more than 40% of the country’s revenue.

Allies on both sides of the Atlantic considered the SWIFT option in 2014.

Russia said taking that step would be the equivalent of a declaration of war. The allies, criticized ever after for responding too weakly back then, shelved the idea.

Russia since then has tried to develop its own financial transfer system, with limited success.

The U.S. has succeeded before in persuading the SWIFT system to boot Iran, over its nuclear program.

But acting against Russia would also hurt other economies, including those of the U.S. and key ally Germany.

Dollar clearing

A powerful financial tool held by the U.S. is the blocking of Russia from access to the U.S. dollar, which dominates global financial transactions,.

Dollar transactions are ultimately cleared through the Federal Reserve or U.S. financial institutions.

Crucially for Russian President Vladimir Putin, that means foreign banks have to be able to access the U.S. financial system to settle dollar transactions.

Previously, the U.S. has suspended financial institutions from dollar clearing for allegedly violating sanctions against Iran, Sudan and other countries.

Unlike the SWIFT option and the other financial measures, it’s one the U.S. could do on its own.

Many Russians and Russian companies would be stymied in carrying out even the most routine transactions, such as payroll and purchases, because they would have no access to the U.S. banking system.