Will US secondary sanctions hurt Russia?

Expanded sanctions against Russia and increased pressure on countries Moscow considers “friendly states” are hurting Russian companies’ export revenues and creating problems with oil payments, the Central Bank of Russia (CBR) said on May 24, Reuters reported.

Since the Russia-Ukraine conflict broke out in February 2022, the US has been constantly pressuring Moscow with a wave of sanctions and threatening secondary sanctions against foreign banks that facilitate transactions with Moscow.

US President Joe Biden's executive order, announced last December, allows for US sanctions against foreign financial institutions that facilitate significant transactions or provide services to support Russia's military-industrial base.

Sanctioned banks will face sanctions that could see their US correspondent accounts completely frozen or subject to strict conditions. The order also allows the US Treasury to ban imports of products originating in Russia but manufactured elsewhere.

“The expansion of sanctions and pressure on friendly countries has led to a decline in companies’ export revenues,” the CBR said in a report on financial stability.

A branch of Italian bank UniCredit in Russia, in Moscow in 2022. US Treasury Secretary Janet Yellen also warned about the risks European banks face in continuing to do business in Russia, more than two years after the Russia-Ukraine conflict broke out. Photo: Bloomberg

Russia distinguishes between countries that impose sanctions in response to its campaign in Ukraine and those that do not, calling them “unfriendly countries” and “friendly countries.”

“Unfriendly countries are hindering not only the sale of hydrocarbons but also the implementation of major investment projects,” the CBR said. “In the context of secondary sanctions, supply chains and payment mechanisms are becoming more complex, leading to higher import prices and supply disruptions.”

The threat of secondary sanctions has also slowed Russian banks’ increase in correspondent accounts in friendly jurisdictions, the CBR said. The number of correspondent accounts in dollars and euros has fallen by 55% since the start of 2022, according to the Bank of Russia.

Washington’s imposition of secondary sanctions on banks that facilitate transactions related to Russia’s military sector has helped discourage Moscow’s efforts to procure goods needed for the conflict in Ukraine, but more needs to be done, U.S. Treasury Secretary Janet Yellen said on May 21.

Ms. Yellen said the US Treasury Department is “working to stop sanctions evasion wherever we see it, from Central Asia to the Caucasus and throughout Europe . ”

Minh Duc (According to Reuters, S&P Global)

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