The White House on Tuesday announced a round of sanctions targeting Russian banks and limiting the country’s access to financial markets after Russia sent troops into two regions of eastern Ukraine, a step U.S. and European officials characterized as the opening stages of a wider war.
“If Russia goes further with this invasion, we stand prepared to go further with sanctions,” he said, one day after Russian President Vladimir Putin ordered his forces into the two breakaway regions of Donetsk and Luhansk, which he formally recognized as independent. Putin said the troops were on a “peacekeeping” mission. Biden called Russia’s actions “a flagrant violation of international law.”
The U.S. measures paired with similar efforts in Europe, including the mothballing of the $11 billion Nord Stream 2 gas pipeline from Russia to Germany that will now sit dormant for the foreseeable future.
Putin’s actions followed a sharp increase in violence in eastern Ukraine over the weekend. Civilians in Ukrainian-controlled parts of the east said they thought their homes were being targeted by separatists to provoke a response from Ukrainian government forces. U.S. officials have repeatedly warned that Russian troops might stage such an attack to justify an invasion.
Putin urged Ukraine to remain neutral militarily, a day after he asserted in an extraordinary televised address that Ukraine wasn’t even a sovereign country.
As officials in Washington and Europe waited anxiously for the Russian leader’s next move, the Biden administration sought to calm spooked markets and assure consumers that the sanctions were designed to harm Russia’s economy and to limit collateral damage. “I’m going to take robust action to make sure the pain of our sanctions is targeted,” Biden said, acknowledging concerns about the rising cost of gasoline as energy prices have soared during the crisis.
“I want to limit the pain the American people are feeling at the gas pump,” he said. “This is critical to me.”
The Russian aggression and responding sanctions led to a volatile day of trading, with all three major U.S. stock indexes falling at least 1 percent.
“I’m hoping diplomacy is still available,” Biden told reporters at the White House, though the prospects for a negotiated end to the crisis appeared dim.
Secretary of State Antony Blinken on Tuesday canceled a meeting with Russian Foreign Minister Sergei Lavrov scheduled for later in the week, saying the Kremlin’s push into Ukraine demonstrated that it is not “serious” about diplomacy.
The administration’s actions quickly followed targeted sanctions from European countries and suggested that Washington and its allies were taking an incremental approach to countering Russian military aggression.
While Biden and his top advisers labeled Russia’s move an “invasion,” it appeared officials were waiting to see if Putin ordered his forces deeper into the country or launched an assault on a major city, such as the capital, Kyiv, before imposing harsher punishments.
For months, Biden, as well as European leaders, had promised a barrage of historic sanctions that could cripple the Russian economy and effectively cut the country off from the global financial system if Russia invaded Ukraine.
But the sharpest action on Tuesday may have been German Chancellor Olaf Scholz’s decision to halt approvals for the gas pipeline. The decision will deprive Russia of energy revenue — but more importantly, it signals newfound resolve from Germany, the rich-world country with which Russia has the deepest trade relationship.
With its move, the United States was for the first time applying its most potent economic tool, known as “full blocking” sanctions, against two major Russian state-owned financial institutions, freezing their assets and cutting off all transactions with them.
The most significant target, VEB, or Vnesheconombank, is a development bank and Russia’s fifth-largest financial firm. It is “a glorified piggy bank for the Kremlin that holds more than $50 billion in assets,” said Daleep Singh, deputy national security adviser for international economics.
The administration is also sanctioning Promsvyazbank, a $35 billion bank that finances Russia’s military.
“In plain English, full block means these banks can no longer make any transactions with the U.S. nor with Europe, as Europe matched our actions, and their assets in our respective financial systems will be frozen,” Singh said.
“And let me be totally clear: No Russian financial institution is safe if this invasion proceeds,” Singh added, pointing to potential actions against “the two largest Russian financial institutions, which collectively hold almost $750 billion in assets — or more than half of the total in the Russian banking system.”
He was referring to Sberbank and VTB.
The United States also is cutting off the Russian government, the Russian central bank and its sovereign wealth funds from new U.S. financing. Europe has taken a similar step. That means, Singh said, “the Kremlin can no longer raise money from the U.S. or Europe, and its new debt can no longer trade on U.S. or European financial markets.”
While dramatic, the sanctions seemed to serve as a warning to Putin not to escalate the crisis, rather than a wholesale attempt to isolate Russia’s economy, experts said.
“This is what I would call a shot across the bow,” said Edward Fishman, a former State Department official who worked on sanctions policy. It’s not close to the massive steps that the Biden administration threatened in the event of a full-scale invasion, Fishman said. Rather, “it’s a measured escalation of sanctions.”
The Biden administration has insisted that its approach would differ from 2014, when modest sanctions were applied after the Russian invasion and annexation of Crimea and subsequent fueling of a separatist uprising in eastern Ukraine. This time, administration officials vowed, they would “start high” and “stay high.”
But the sanctions announced thus far clearly left room to go higher. A senior administration official rejected the premise that the Biden administration had not taken the maximalist approach it had foreshadowed. Sanctions the administration rolled out late Monday, for instance, were narrowly focused on the two separatist Ukrainian territories into which Putin sent troops for what he claimed were “peacekeeping” purposes.
“We are starting high and staying high,” the official said, dismissing the suggestion by a reporter than the United States was, in fact, “starting medium.” The official spoke on the condition of anonymity under ground rules set by the administration.
The new actions build on the sovereign debt sanctions announced last April in the wake of the Russian Solar Winds cyber intrusions, in which U.S. companies and government agencies were hacked, and efforts to influence the 2020 presidential election. “What the Biden administration seems to be doing is signaling its readiness to go where it’s never gone before,” said Fishman, now an adjunct fellow at the Center for a New American Security.
The administration is also sanctioning a group of powerful Russians and their family members. Some have been sanctioned before, including Aleksandr Bortnikov, the director of the FSB, Russia’s principal security agency, and Sergei Kiriyenko, a top official in Putin’s government. Now their sons, Denis and Vladimir, respectively, will be added to the list, along with Peter Fradkov, the CEO of the Russian military bank, rounded out the list.
Notably, Biden did not mention the imposition of export controls, which would target emerging and strategic Russian industries. The administration has been working with allies and partners to build support for a multilateral package of controls that would starve Russia of key products such as semiconductors, the tiny components on which all modern technology depends.
Brian O’Toole, a former senior Treasury Department official who worked on sanctions in the Obama administration, called the designations “a reasonable first tranche.” But, he said, “unfortunately these sanctions do fall short of the major banking sanctions promised on both sides of the Atlantic.
“No significant commercial banks were included,” O’Toole noted. So while the sanctions will have some impact, given their incremental nature, “I fear that Putin may assess the West does not have the stomach to impose truly significant measures.”
On Monday, Putin delivered a long and fiery national address arguing that the decision to recognize the two republics “should have been taken a long time ago.” He accused the Ukrainian government, without evidence, of a “genocide” on the region’s inhabitants.
On Tuesday, European foreign ministers met in Paris to coordinate their responses, concluding that they should take a restrained approach for now because Putin — based on his own statements — was likely to escalate militarily, according to a senior European diplomat familiar with the conversations who was not authorized to speak publicly.
Scholz’s announcement that Germany was halting authorization of the Nord Stream 2 pipeline, which had been set to become a major artery of natural gas from Russia to Germany, surprised many European leaders. The European diplomat said that in light of Germany’s decision, the overall response to Russia’s moves from the European Union was robust, even though sanctions by individual member states were comparatively modest.
The diplomat said that the E.U. sanctions had been shaped as much by Putin’s provocative speech as by the facts on the ground in Ukraine.
British Prime Minister Boris Johnson announced his country’s first wave of sanctions against Russia, targeting five Russian banks and three Russian billionaires who are members of Putin’s inner circle.
The European Union also announced plans to sanction Russia. Josep Borrell, the bloc’s foreign policy chief, outlined a plan to target people and entities including 351 members of Russia’s State Duma that voted for recognition of the breakaway regions, as well as 27 individuals and entities he accused of “playing a role in undermining or threatening Ukrainian territorial integrity, sovereignty and independence.”
Borrell also said the E.U. will “target the ability of the Russian state and government to access our capital and financial markets and services.”
John Hudson, Dan Lamothe and Ashley Parker in Washington, Rick Noack in Paris, Emily Rauhala in Brussels and Robyn Dixon in Moscow contributed to this report.
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