The European Council says further sanctions against Russia are “on the way”. Gruesome images of Russian atrocities in Bucha — graphic and horrific — underline the need for more action.
French President Emmanuel Macron wants the EU to ban oil and coal imports from the country. Germany, which is heavily dependent on Russian fuel, has opposed such measures. Could the US unilaterally tighten economic restrictions on Russia by imposing secondary sanctions?
At first glance, the move, recently suggested by US National Security Adviser Jake Sullivan, seems logical. When foreign organizations transact with entities placed under US sanctions, such as the Russian bank VTB, Washington would also impose sanctions on them. That reduces the possibilities for such companies to find new counterparties in China, India, Europe or elsewhere.
But secondary sanctions are imperfect weapons. The EU created a blocking status following US sanctions and embargoes against Iran and Cuba. This is intended to protect EU companies from the extraterritorial threat from the US. It’s lean because few of them risk being isolated from US markets.
China has its own law “to preserve national sovereignty” by countering US sanctions. This has a bigger kick than the EU version. Chinese companies are used to being blacklisted by the US and are less concerned about standoffs with Washington.
Countries can also avoid secondary sanctions with what Tom Keatinge, of the Center for Financial Crime and Security Studies at the Royal United Services Institute, calls “burner banks.” These have the sole purpose of dealing with entities under sanctions.
Examples include the Bank of Kunlun, which is controlled by the state body China National Petroleum Corporation and is used as a conduit for oil payments to Iran. Washington imposed sanctions bankrupt in 2012, barring it from entering the US financial system – hardly punitive given Kunlun’s order.
Avoiding US dollars is another defensive tactic. India and Russia are considering a rupee-rouble arrangement for exports. Cryptocurrency payments can also be an option.
Secondary sanctions come alongside selective bans for Russian banks that use the payment messaging system Swift. They claim the moral high ground, but are only of added value and compromised utility.
Secondary sanctions would also fuel the fires of deglobalization and push nonaligned countries away from developed democracies. The only meaningful escalation of the economic war against Russia remains European import embargoes on Russian energy, of the kind advocated by Macron.
The Lex team would like to hear more from readers. Please tell us what you think the west should do to financially strain Russia in the comments section below