The US and European allies are preparing what is being described on both sides of the Atlantic as the most aggressive package of economic and financial sanctions ever assembled to punish Russian president Vladimir Putin if he approves an invasion of Ukraine.
The hope in western capitals is that the mere threat of these measures will be enough to deter Putin from attacking Ukraine in the first place — and if that fails, to pound Moscow with so many economic weapons that it will weaken the Kremlin’s resolve.
So what measures specifically are the US and the EU prepared to impose?
In recent days, the US and the UK have escalated plans to punish Putin’s inner circle by taking aim at Russia’s economic elite and the money it has parked in the west.
Senior Biden administration officials said they have now drawn up “specific sanctions packages” focused on Russian oligarchs and their family members. They would not say who would be on the list, because of concerns about “flight risk”, but the scope could be broad. US officials said some names would be drawn from a classified list of potential targets sent by Treasury to Congress in 2018.
Given how many Russian oligarchs have assets and other financial interests in the UK, support from Britain has been crucial to US efforts, and senior Biden administration officials have touted their co-ordination with London on the individual sanctions packages.
On Monday, the UK vowed to introduce new legislation strengthening London’s ability to target Kremlin-linked businesses and their owners in the country.
The EU is also drawing up a list of individuals to be hit with personal sanctions such as asset freezes and travel bans, but has in the past demanded a higher burden of proof for inclusion in such lists than the US, given the ability for those affected to mount legal challenges in European courts.
The US and the EU also want to strike at the heart of the Russian banking system and cut Moscow significantly out of the international financial system, having failed to do so following the 2014 annexation of Crimea.
Russia’s largest financial institutions, including Sberbank, VTB, Gazprombank, The Russian Direct Investment Fund and Alfa Bank, are all in the line of fire.
Meanwhile, the US and its allies have also been debating excluding Russia from Swift, the international payments network, which would further complicate the ability of Russian banks to interact with the west.
But the EU is less supportive of this step, given the potential fallout on the service’s reputation, and how any disconnection might be perceived by third countries. One EU official said disconnecting Russia was seen “as a last resort”, and that it may be more effective to use targeted financial sanctions that, for instance, prevent lenders from converting roubles into dollars.
US officials said last week there was growing “convergence” with EU allies on both the severity and the immediacy of the financial sanctions, noting that they would aim to hit both existing and new financing.
Some EU states have also called for Russia’s access to the IMF’s Special Drawing Rights — which act as reserve currency — to be frozen, according to documents seen by the FT.
The US and the EU have discussed imposing very stringent export controls on western technology in order to inflict as much damage as possible to Russia’s industrial base and its capacity to innovate.
Traditionally, export controls have been used as a means to prevent sophisticated weaponry from getting into the hands of geopolitical adversaries. However the US and many European countries have expanded the measures to include emerging technologies such as quantum computing and artificial intelligence.
According to people familiar with the Biden admin’s thinking, one of the most potent tools the US could deploy in this realm is the so-called “foreign direct product rule”, which was used to rein in Chinese technology company Huawei. The rule would prevent third countries from exporting certain sensitive technologies containing US components to Russia.
“Export controls deny something to Russia that it needs and can’t easily replace from anywhere else,” a senior Biden administration official said last week, adding: “What we’re talking about are sophisticated technologies that we design and produce that are essential inputs to Russia’s strategic ambitions.”
Arguably the most politically and economically sensitive arena in which the US and the EU are preparing sanctions is the energy sector. Moscow is heavily reliant on energy exports as a source of foreign reserves, and the EU relies on Russian gas for 40 per cent of its consumption. Meanwhile America is concerned about high energy costs stoking inflation ahead of the midterm elections.
Yet the US and its allies have been debating using unprecedented measures to sanction oil and gas producers as well as Russian companies in the mining sector.
Despite some uncertainty over the position of the new German government, the US and the EU have determined that if Russia decides to invade Ukraine, they would stop the controversial Nord Stream 2 gas pipeline linking Russia and Germany from becoming fully active. This would be a major blow to Moscow and could also lead to significant economic pain in Germany.
However the EU’s reliance on Moscow means there is also significant scope for potential countermeasures. Brussels is particularly concerned about a possible collapse in gas supplies in the event of a war, either because of damage to Ukrainian pipelines supplying Europe or Russia moving to restrict gas supplies.
The Trade Secrets Newsletter is the FT’s must-read email on the changing face of international trade and globalisation. Written by FT trade specialist Alan Beattie, it is delivered to your inbox every Monday. Sign up here