The United States is stepping up sanctions on Russia to deprive Moscow’s “war machine” of money and parts needed to support its invasion of Ukraine, but curtailing a key source of funding, Russia’s energy exports, will take time, says US Deputy Treasury Secretary Wally Adeyemo told Reuters Thursday.
The United States and its allies have “much more we can and will do” to punish Moscow if Russia does not stop its invasion, Adeyemo told Reuters in an interview.
Ukrainian leaders on Thursday called on the democratic world to stop buying Russian oil and gas and to completely remove Russian banks from the international financial system.
After an initial attempt to freeze Russian assets, Washington and its allies announced incremental steps this week as they approach the limit of sanctions to punish Russia without causing economic pain at home as well.
A new investment ban announced Wednesday by President Joe Biden will ban Americans from investing in stocks, debt and investment funds of Russian companies, cutting off Russia’s defense industry and other sectors from the world’s largest source of investment capital, Adeyemo said.
“This means Russia will be deprived of the capital it needs to build its economy, but also to invest in its war machine,” Adeyemo said.
When asked whether it would ban companies already in Russia from further funding those operations, he said Treasury was in talks with the private sector.
Kremlin officials, who have described their actions in Ukraine as a “special military operation,” have insisted that Western sanctions will have no effect on their targets and will bolster Russian support
Adeyemo said the United States and its European allies will target Russian military supply chains to deny access to key components — “things that are important for building their tanks, providing missiles and making sure they are less resources” to fight the war in Ukraine but also to project power into the future.
“I think the impact will be immediate in the same way that the impact on the economy was immediate” from previous sanctions, Adeyemo said. The Russian economy is heading for a 10% contraction this year and inflation is approaching 20%, US officials estimate.
The Treasury later on Thursday blacklisted Russian diamond miner Alrosa with sanctions https://home.treasury.gov/news/press-releases/jy0707, while the US State Department did the same for United Shipbuilding Corp, a state-owned company. that builds naval ships. ships and submarines and its subsidiaries and board members.
Brian Deese, director of the White House Economic Council, said Wednesday that the Biden administration would also ban transactions with United Aircraft Corp, maker of Sukhoi and MiG fighter jets — planes also flown by U.S. allies, including some NATO members.
Adeyemo said the Russian defense sector has been setting up front companies since 2014 to acquire critical supplies and materials to build Moscow’s military. Several of these companies were the target of sanctions last month https://home.treasury.gov/news/press-releases/jy0677.
Ruble support drains war funds
Financial sanctions have forced Russia to spend more of its energy revenues in hard currency to defend its ruble currency, Adeyemo said, as he gobbled up the funds available for the war effort.
After losing 45% of its value against the dollar in the first two weeks of the Ukrainian invasion, the Russian ruble has risen to just below pre-war levels, thanks to capital controls by Moscow and disruption by the Russian central bank, US officials say.
“That means Russia has less money and the president is forced to make choices between supporting the economy and investing in the war in Ukraine,” he said. Adeyemo said his meetings last week with European allies in London, Brussels, Paris and Berlin helped focus on next steps and accelerate the sanctions announced on Wednesday.
Adeyemo said he was encouraged by “strong statements” from European countries about reducing their dependence on Russian energy, but said the continent was in a different position than the United States, the world’s largest oil producer.
“Because of our ability to produce energy at home, we were able to ban Russian oil imports to America quite quickly,” he said. “It will take them more time, but what they are doing is reducing their dependence over time.”