A few days before Russia invaded Ukraine, President Joe Biden sent a quietly dispatched team to the European Union headquarters in Belgium.
They were not spy chiefs and generals. Instead, they were experts at reading fine print and tracking money, computer chips, and other goods throughout the globe. Their mission was to inflict maximum suffering on Russian President Vladimir Putin making it difficult, if not impossible for him to finance a long-running war in Ukraine and denying his access to the technologies that are at the heart of modern warfare.
According to officials from the Biden administration, intense meetings took place in February in Brussels and London, Paris, London, and Berlin. These meetings lasted six hours each as allies attempted to create details for a historic economic blocade. The Europeans were reluctant to ban some of the U.S. exports. They would be telling their companies to stop receiving several billion dollars annually from Russia, which is essentially what they did.
U.S. negotiators would call Commerce Secretary Gina Raimondo if there was a deadlock.
Raimondo stated that she said to her allied counterparts, “You can say no now, but when the Ukrainian body bags come out of Ukraine, it’s not going to be easy to say no.” Do the right thing.
Raimondo stated that what drove the agreement was the threat of Putin’s attack on Ukraine.
She said, “We all gained religion quickly that it was now time to band together. “If you cause enough suffering, isolate Putin. It will end this war.”
Putin is being confronted directly by the richest nations of the world, other than China. They have placed sanctions that impede Russia’s strengths and weaknesses. Russia relies on the U.S. and its allies for cutting-edge technology and investment. The allies therefore decided to end their relationship with Moscow.
This is a strategy play to trap Putin in a downwards spiral as foreign investors pull their money out in response to the atrocities. This is a remarkable display of unity, which could be tested by the allies’ dependence on fossil fuels in the coming weeks.
An economist group estimated that the EU has transferred more than 13.3 Billion Euros (or $14.7 billion) to Russia since the start of World War II. This is funding Putin’s war machine.
The allied talks that took place in the days leading up to war were crucial, but the EU wasn’t just waiting for the U.S. to direct them to act. Bloc members had been meeting for several months.
A diplomat from the EU spoke on condition of anonymity in order to discuss internal negotiations. He described in an interview potential penalties for export, including the ban on exports, and noted that the EU had maintained its coalition in enforcing sanctions after Russia’s 2014 occupation in the Donbas area in Ukraine.
This time, however, the U.S. & EU responded to Russia’s aggression with a new set of policiesto disable Putin’s ability fight. They denied it access to semiconductors, computers, telecommunications gear, lasers, and sensors that are integral to war materiel.
This will create a supply shortage that will cause Russia to take over existing aircraft, tanks, and other equipment for spare parts. It will also erode its military and economic capabilities. The same U.S. officials and EU officials who were dealing with their own supply chains problems after the pandemic discovered a way to make the problem worse for Russia by implementing trade regulations.
Officials in the United States point out the closure of Lada’s auto plants in Russia, and more than 300 other companies that have stopped doing business or with Russia as a sign of their early success. These companies include chipmakers like Infineon from Germany, which said it has stopped all direct and indirect deliveries to Russia.
Within days of the invasion the allies had blocked foreign assets of Russia’s central bank. Two officials from the Biden administration, who were not allowed to discuss the strategy publicly and spoke under anonymity, stated that this option was not presented initially to allies because they were concerned Russia might move its money before time. They did not present the asset freeze to the Europeans until the invasion began, but the images of death and bombings compelled them to agree almost immediately.
Half of Putin’s war funds, which total more than $600 billion, were rendered unusable by the freeze. The sanctions have been designed to ensure that financial consequences are not only limited to Russia’s stock market, but also the ruble’s value. The sanctions will only be effective if Ukraine can withstand severe casualties and military aid.
On Thursday, Valdis Dombrovskis, Vice President of the EU Commission, praised the “very strong coordination” between nations and stated that the sanctions were “biting hard”. Russia’s financial markets could collapse. He also pointed out that sanctions can have costs for allies, but the cost is far less than the effects of war spreading.
Each new round of sanctions puts the strength of the 27 EU member states under greater scrutiny. Germany and Italy will have to deal with the pressure from several eastern member countries like Poland and the Baltic States if Russia is banned. Biden can ban these imports earlier in the month because the U.S. is less dependent upon Russian oil and natural gases.
There’s also the possibility that sanctions won’t be enough to stop Putin, or that Russia will still find ways to import goods into its economy. ImportGenius has analyzed trade data and found that China was the largest source of Russian exports in 2021. The U.S. is not far behind. Officials claim that Russia has sought assistance from the Chinese government.
Olivier Blanchard, the former chief economist of the International Monetary Fund, and now a fellow at The Peterson Institute of International Economics compared the sanctions to the German factory bombings during World War II. These bombings caused the German war machine to be disrupted in a way that made it impossible for them to continue a prolonged fight. Economists played a part in selecting the targets.
Despite all the work done, there is still a question about how much it is sufficient.
Blanchard suggests that export controls be expanded beyond defense-related production to include “anything which disrupts production in the Russian economy.” He stated that Russian refrigerators require a gasket manufactured in the EU. This makes it more difficult for the Russian economy’s to function.
Tania Babina is a Columbia University finance professor who was born in Ukraine. She said that sanctions don’t stop dictators, and that Putin could become more entrenched if the U.S. or EU do not take stronger action. She suggested that the Europeans should add sanctions to ban Russian oil and natural gases.
Babina stated, “He will throw everything at the goal and send his grandma to fight for him if necessary.” He cannot lose Ukraine. It is therefore so important to stop Russia from exporting energy.
Babina pointed out that the allied strategy of sanctions has a far greater chilling cost: Ukrainian lives.
She asked, “How many people can we let die before Putin runs dry of assets?”