The United States announced on Friday its intention to impose sanctions on foreign banks supporting Russia’s military activities in Ukraine. President Joe Biden is set to sign an executive order authorizing the implementation of secondary sanctions against financial institutions aiding Russia’s defense industry.
This strategic measure aims to apply economic pressure on Moscow, especially as it explores alternative alliances with China amid tensions with the West.
The U.S., as the world’s largest economy, sends a clear message to financial institutions globally, emphasizing a choice between supporting Russia’s military-industrial complex or maintaining ties with the U.S. financial system. A senior U.S. official highlighted the economic superiority of the U.S. and the widespread use of the U.S. dollar, anticipating that most banks would prioritize their connection to the U.S. financial system.
Despite facing economic challenges due to Western sanctions, Russia continues to navigate the impact, diversifying its reliance on traditional currencies. Notably, China’s major banks have extended substantial credit in renminbi to Russia, counterbalancing the departure of Western institutions. The U.S. official expressed hope that European and U.S. banks, even if not directly invested in Russia, would exert influence on their partners operating within the country.
In another move, the U.S. Treasury Department revealed a cap on Russia’s oil exports, limiting prices to no more than $60 per barrel. Although this cap has affected Russia’s tax revenue from oil exports, varying assessments suggest differing impacts, with some reports citing widespread non-compliance.
As the U.S. intensifies secondary sanctions, concerns arise about the potential shift away from the dollar by other nations. This approach mirrors previous actions taken against Iran, where the U.S. leveraged its influence by threatening countries purchasing oil from the state. The latest developments unfold against the backdrop of the Group of Seven’s hesitation to seize Russian government assets to support Ukraine, and uncertainties surround the continuation of direct U.S. assistance to Ukraine due to unrelated legislative disputes.