Treasury aims to inflict economic damage on Russia, but critics question its effectiveness

WASHINGTON — When Russia imposed retaliatory sanctions on top US officials last month, its government targeted President Biden and his top national security advisers, along with Wally Ademo, the deputy Treasury secretary, whose agency was crafting punitive measures aimed at crippling the Russian economy.

The Russian move, while entirely symbolic, underscored the central role the Treasury plays in designing and enforcing the broader fiscal constraints that the United States has imposed on a major economic power.

These restrictions amount to an economic war against Russia, which is entering a critical phase as the outcome of the fighting in Ukraine continues to escalate and as the Russian government attempts to find ways to evade or mitigate the repercussions of Western sanctions.

In an effort to prevent Russia from getting around the sanctions, Mr. Adeemo, a 40-year-old former Obama administration official, has spent the past week touring Europe coordinating a crackdown on Russia’s evasive tactics and planning future sanctions. In meetings with his counterparts, Mr. Ademo discussed plans by European governments to target the supply chains of Russian defense companies, some of which were imposed by the United States last week, and talked about ways the United States can help provide more energy to Europe so that Europe can A Treasury official said countries may reduce purchases of Russian oil and gas.

On Wednesday, five days after Mr. Adeemo’s return, the Biden administration announced additional sanctions on Russian banks, state-owned companies and the adult daughters of President Vladimir Putin.

However, while the United States and its allies have enacted sweeping sanctions designed to neutralize Russia’s economic power, it remains to be seen whether or not these restrictions work.

Over the past six weeks, the United States and its allies in Europe and Asia have imposed sanctions on Russia’s large financial institutions, its central bank, the military-industrial supply chain and Putin’s allies, seizing their yachts and planes. Russian oil imports into the United States have been blocked, and Europe is developing plans to wean itself off Russian gas and coal, albeit slowly. This week, the Treasury prevented Russia from making sovereign debt payments with dollars held in US banks, which could push Russia toward its first default on its foreign currency debt in a century.

But so far Russia has continued to repay its debts. Currency controls imposed by Putin’s central bank, which prevented Russians from using the ruble to buy dollars or other hard currencies, along with ongoing energy exports to Europe and elsewhere, have allowed the ruble to stabilize and to replenish Russia’s coffers with more dollars and euros. This has raised questions about whether the measures are effective.

“I think we are struggling with the after-effects of the shock and awe of the sanctions that have been imposed and the recognition that sanctions take time to fully impact the economy,” said Juan C. Zarate, a former assistant secretary of the treasury. To commit terrorist financing and financial crimes. “It takes a lot of sanctions to actually bring the tanks back, especially when the sanctions were implemented after the invasion.”

In a speech in London last week, Mr. Ademo touted the potential of sanctions to change behaviour, describing the measures as part of the equation that adversaries like Russia need to consider when they violate international norms.

“The idea that you can violate the sovereignty of another country and enjoy the privileges of integrating into the global economy is one that our allies and partners will not tolerate,” said Mr. Ademo at Chatham House, a think tank.

However, even the United States, which is not dependent on Russian energy, is wrestling with how far to go with its sanctions.

Inside the Treasury, officials have been in constant debate about the extent to which sanctions should be paid without creating unintended consequences that would upset the financial system and fuel inflation, which is spiraling in most parts of the world.

The impact on the US economy has been a top priority, and Treasury Secretary Janet L. Yellen has expressed concern about measures that would inflate inflation. Sanctions on Russia have already sent gasoline prices soaring, and officials fear there could be spikes in food and car prices as Russian wheat and mineral exports are disrupted.

“Our goal from the start has been to impose maximum pain on Russia, while protecting the United States and our partners to the best of our ability from undue economic damage,” Yellen told lawmakers on Wednesday.

As officials contemplated how to target the ruble, former Federal Reserve Chair Ms Yellen argued against simply imposing a ban on foreign exchange transactions, which would prevent Russia from buying dollars. She suggested instead that freezing Russia’s foreign reserves — savings held in US dollars, euros and other liquid assets — while creating exemptions for Russia to accept payment for certain energy transactions would be the most effective way to damage the Russian economy while minimizing the impact on the United States and its allies.

At a congressional hearing this week, Republicans criticized these cut-offs for being giant loopholes that allow Russia to earn hundreds of millions of dollars a day through oil and gas sales.

Treasury officials have been tracking the measures Russia uses to prop up its economy, such as buying stocks and bonds, and monitoring the ruble’s growing black market indicators, which indicate the currency’s declining actual value. The Biden administration has watched with concern the ruble’s recovery in recent weeks, playing down statements by Biden that sanctions have reduced the Russian currency to “rubble. “

said Daniel Fried, former US ambassador to Poland and assistant secretary of state for Europe.

A Treasury official said the US also maintains a special list of oligarchs whose financial transactions have been kept under surveillance in preparation for future sanctions so they can get a better understanding of the networks of people helping these individuals hide their money. The United States has yet to impose sanctions on Russian billionaire Roman Abramovich, who is already subject to European Union sanctions.

Economists at the Institute of International Finance wrote in a research note this week that Russia’s domestic markets appear to be stabilizing as a result of tight monetary policy, tight capital controls and a current account surplus.

“Sanctions have become a moving target and will require adjustments over time to remain effective,” they said.

Monitoring sanctions against Russia and ensuring that anti-evasion efforts are coordinated with Europe is largely the responsibility of Mr. Adeyemo.

Mr. Ademo worked for the Treasury Department during the Obama administration and was Deputy National Security Adviser for International Economics when the United States was imposing sanctions on Russia after it annexed Crimea in 2014. Ms. Yellen, an academic economist with no national security experience, appointed Mr. Adeemo last year served as deputy minister and led the review of the department’s sanctions program.

The review stressed the need for sanctions, often deployed unilaterally during the Trump administration, to coordinate closely with US allies so that they can “disrupt, deter and prevent” actions that undermine US national security.

Mr. Adeemo has been coordinating closely with State Department officials and with Dalip Singh, who was Deputy Assistant Secretary of the Treasury for International Affairs during the Obama administration and is now Deputy National Security Adviser for International Economics.

Julia Friedlander, a former senior policy adviser for Europe in the Treasury’s Office of Terrorism and Financial Intelligence, said the Biden administration has been more aggressive in imposing sanctions on Russia than it was in 2014, when there was concern about actions that were not “proportionate” and could lead to destabilize the Russian economy. She added that the gradual build-up of Russian forces heading toward Ukraine before the war gave the Biden administration more time to coordinate with allies and prepare to deploy sanctions quickly once the invasion began.

“It’s really a tactical shift between responding in proportion against the people involved and wanting to do harm as a tactic,” Friedlander said.

But some sanctions experts maintain that the Biden administration has not gone far enough and has been very cautious. Many of the tougher measures the United States used against Iran to prevent it from benefiting from energy exports have yet to be used against Russia. Many major banks still have to be penalized or cut off from SWIFT, the international financial messaging service. The United States has tread carefully when it comes to pressuring Europe to stop buying Russian energy.

“Time is not on Ukraine’s side,” said Marshall Billingsley, who was the Trump administration’s assistant secretary of the Treasury for terrorism financing. “The longer the administration dodges these half-measures and doesn’t take steps to truly cripple the Russian economy, the longer the Russian offensive will last and more massacres, destruction, and war crimes will continue.”

Ms Yellen said this week that any sanctions targeting Russia’s energy sector would need close coordination with Europe, which remains highly dependent on Russian oil and gas. She added that taking such a step could have undesirable consequences.

“It is possible that we would see a massive rise in prices if we imposed a total embargo on oil,” Yellen said.

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