Turn up the economic heat on Putin

One month into Russian President Vladimir Putin’s horrific war on Ukraine, the Russian strongman has turned his country into a pariah state on par with Iran and North Korea. We should sanction the Kremlin the same way we sanction those other rogue regimes, isolating Russia and disconnecting it from the global economy. The Biden administration deserves credit for helping Ukraine’s President Volodymyr Zelensky mobilize international partners and for announcing several initial sanctions. But the White House thus far has settled for a series of half-measures and has yet to unleash the full potential of American economic might.

Here’s what should happen next.

First, the administration should implement crippling sanctions on Russia’s entire financial services sector, and pressure SWIFT, the Society for Worldwide Interbank Financial Telecommunication, to disconnect every bank in the country. So far, the White House has imposed fairly modest sanctions on the country’s central bank — even that reportedly was done at the behest of the Canadian government — and a handful of mostly government-owned or -controlled commercial banks. There is far less here than meets the eye, and Putin has plenty of loopholes to exploit.

Because most of Russia’s largest banks remain connected to the international financial system, Putin’s bankers are playing a shell game, moving money around, replenishing foreign currency reserves and propping up the value of the ruble. We need to sanction the entire banking industry, not just a handful of cherry-picked targets. We also should impose full blocking sanctions, so U.S. banks must freeze funds and properties associated with designated institutions. And we should authorize secondary sanctions on any foreign party that colludes with these sanctioned banks, to deter others from helping Russia evade our actions and to impose consequences on those that do. 

Second, to truly cripple Russia’s economy, we should target its energy industry, which accounts for some 63 percent of Russian exports. Germany’s suspension of Nord Stream 2 and President Biden’s decision to ban U.S. imports of Russian oil are welcome steps. But the administration made an enormous mistake in expressly exempting all energy payments from U.S. sanctions. Shielding Russian energy only rewards Putin’s strategy of using oil and gas to blackmail Europe; it invites more of the same. It also means that consumers in Europe and elsewhere continue to subsidize the Russian bombs that are reducing Ukrainian cities to rubble.

We understand the reluctance to pressure Germany and other EU members on energy imports. But a compromise is available if the White House just takes a page from the playbook the two previous administrations used to great effect against Iran. In exchange for not being sanctioned by the U.S., countries that persist in buying Russian energy should be required to deposit the payments into domestic, frozen escrow accounts, cutting off the flow of hard currency back to Moscow. Escrowed funds could only be used for Russian purchase of local goods — or, even better, held in reserve to pay reparations and rebuild Ukraine after the war. 

Third, we must eliminate Russia’s trade surplus, because that’s what is replenishing Putin’s war coffers. In addition to energy, we should impose broad sectoral sanctions on other key industries, including minerals and metals, machinery and equipment, chemical products as well as timber. This effective embargo on Russia’s hard currency-generating exports would cripple the engines of the Russian economy and present Putin and his cronies a stark choice: cease their ruinous war or see the Russian economy itself reduced to ruins. 

To be sure, these sanctions will have consequences for Western economies, particularly those European countries that allowed themselves to become dangerously dependent on Russian energy. We can offset some of that harm by ramping up production of U.S. oil and gas, encouraging energy-rich partners in the Gulf to do likewise, and developing alternative supply chains for materials sourced from Russia. In any event, the U.S. and Europe have economies that are larger, more diversified, and more resilient against shocks. We are better positioned to weather an economic storm.

Finally, the administration has begun to sanction a handful of Putin’s cronies, mostly following the lead of the UK and EU. More robust action is needed to deny Russian oligarchs financial safe havens abroad. We should impose sweeping sanctions on Putin’s family, and those of his inner circle, to stop them from stashing the money they have looted from the Russian people into prosperous and stable Western economies.

Blocked assets should be seized through legal processes and used to rebuild Ukraine. We should also revoke the Putinists’ visas, barring them from traveling to our countries. No more luxury estates in Miami or Aspen. No more weekend getaways to New York.

Moderate sanctions have not induced moderation from Putin on the battlefield. To the contrary, he has escalated dramatically, launching scorched earth attacks on civilian targets like maternity hospitals and a theater sheltering civilians (clearly marked with the word “children”). Biden says it will take several months for the sanctions he’s announced to have an effect. Ukraine doesn’t have that long. In the face of Russia’s war crimes, the time for half-measures is over. We must use the most powerful economic weapons in our arsenal, and we must use them now. We need to do to Putin’s economy what he is doing to Mariupol.

Former Ambassador Nathan A. Sales served in the Trump administration as ambassador-at-large and coordinator for counterterrorism as well as acting under secretary of State for Civilian Security, Democracy and Human Rights, among other roles. He is a nonresident senior fellow at the Atlantic Council.

Marshall Billingslea was president of the Financial Action Task Force and assistant secretary of the Treasury for Terrorist Financing in the Trump administration. He is a senior fellow at Hudson Institute.