Ukrainian forces have pushed the Russian army into humiliating retreat in Kherson. Moscow claims the region — and three others — as its own. Vladimir Putin recently hinted he could use nuclear weapons in response to Ukrainian advances. If he does, harsher sanctions should be part of the western riposte.
What options are there? Sanctions have so far included asset and funding freezes. These have hit the Russian central bank and big commercial peers Sberbank and VTB. A swath of oligarchs and Kremlin officials are pariahs abroad.
Much more could be done. Researchers say current sanctions are on course to shrink the Russian economy by as little as 4 per cent in 2022. Trade with the US and EU was still worth $183bn in the first six months of this year.
Expect a full trade and travel embargo from the US and EU if Russia uses tactical nukes in Ukraine. This should include EU states banning all further purchases of Russian oil and gas. Full sanctions on Gazprombank, the main payments conduit, would be required. Europe would need to ration energy carefully through the winter.
The EU already plans to ban oil imports starting in December. The G7 is working on a price cap on Russian oil exports to neutral countries using the leverage of the EU’s large shipping fleet.
Such measures have left Urals oil at a steep discount to Brent. To widen the gap further, the west should consider secondary sanctions. These would fall heavily on Indian energy groups, currently enthusiastic buyers. The west should also contemplate secondary sanctions on banks in unaligned countries. The US recently managed to stop Turkish banks accepting Russia’s Mir payments card.
Much of the Russian economy remains open to the west in “non-essential” sectors. These are vulnerable to fresh sanctions. Machinery and transport equipment account for the bulk of EU exports to Russia.
Confiscating Russian assets would be a more radical move. The Kremlin says $300bn of central bank reserves have been frozen overseas. But taking a portion of that would involve counterproductive disregard for the rule of law.
Better to shore up existing sanctions. These have been poorly implemented and are sometimes easily circumvented. Ship-to-ship oil transfers are one brazen example.
Hurting Russia means hurting the global economy. But the first ever bellicose use of nukes in Europe would require a corresponding economic response. Putin, who is fond of citing nuclear precedents, should expect that.
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