WASHINGTON (AP) — The United States and European nations agreed Saturday to impose the most potentially crippling financial penalties yet on Russia over its unrelenting invasion of Ukraine, going after the central bank reserves that underpin the Russian economy and severing some Russian banks from a vital global financial network.
The decision, announced as Ukrainian forces battled Saturday to hold Russian forces back from Ukraine’s capital and residents sheltered in subway tunnels, basements and underground garages, has potential to spread the pain of Western retaliation for President Vladimir Putin’s invasion to ordinary Russians far more than previous rounds of penalties.
“Putin embarked on a path aiming to destroy Ukraine, but what he is also doing, in fact, is destroying the future of his own country,” EU Commission President Ursula von der Leyen said.
The European Union, United States, United Kingdom and other allies have steadily stepped up the intensity of their sanctions since Russia launched the invasion late last week.
While U.S. and European officials made clear they still were working out the mechanics of how to implement the latest measures, and intend to spare Russia’s oil and natural gas exports, the sanctions in total potentially could amount to some of the toughest levied on a nation in modern times. If fully carried out as planned, the measures will severely damage the Russian economy and markedly constrain its ability to import and export goods.
The U.S. and European allies announced the moves in a joint statement as part of a new round of financial sanctions meant to “hold Russia to account and collectively ensure that this war is a strategic failure for Putin.”
The central bank restrictions target access to the more than $600 billion in reserves that the Kremlin has at its disposal, and are meant to block Russia’s ability to support the ruble as it plunges in value amid tightening Western sanctions.
The ruble and Russia’s stock market both declined sharply immediately after Russia launched military action in Ukraine on Thursday. The ruble recovered slightly but is still down more than 6 percent from before Putin’s announcement, trading at nearly 84 rubles to the dollar.
U.S. officials said Saturday’s steps were framed to send the ruble into “free fall” and promote soaring inflation in the Russian economy.
The decline of the ruble would likely send inflation soaring, which would hurt everyday Russians and not just the Russian elites who were the targets of the original sanctions. The resulting economic disruption, if Saturday’s measures are as harsh as described, could leave Putin facing political unrest at home.
Analysts predicted intensifying runs on banks by Russians, and falling government reserves as Russians scrambled to sell their targeted currency for safer assets.
The U.S. officials noted that previously announced sanctions have already had an impact on Russia, bringing its currency to its lowest level against the dollar in history and giving its stock market the worst week on record.
Saturday’s move also includes cutting key Russian banks out of the SWIFT financial messaging system, which daily moves countless billions of dollars around more than 11,000 banks and other financial institutions around the world.
The fine print of the sanctions was still being ironed out over the weekend, officials said, as they work to limit the impact of the restrictions on other economies and European purchases of Russian energy.
Allies on both sides of the Atlantic also considered the SWIFT option in 2014, when Russia invaded and annexed Ukraine’s Crimea and backed separatist forces in eastern Ukraine. Russia declared then that kicking it out of SWIFT would be equivalent to a declaration of war. The allies — criticized ever after for responding too weakly to Russia’s 2014 aggression — shelved the idea back then. Russia since then has tried to develop its own financial transfer system, with limited success.
