Biden’s harsh new sanctions are aimed at crippling Putin’s defenses

Biden’s harsh new sanctions are aimed at crippling Putin’s defenses

Greg Sargent — Read time: 4 minutes

Ever since the United States and its allies announced sanctions against Russia to halt its invasion of Ukraine, the effort faced a big unknown. What if Vladimir Putin has already insulated himself from their effects — by building up reserves protecting the ruble and with repressive measures protecting himself politically — rendering any such onslaught moot?

The Biden administration just announced another round of harsh sanctions targeting the Russian president that appear aimed at solving that problem. The stakes of success just got higher: If this effort can work — a big “if” — it could show that multilateral action in defense of the liberal international order can produce results at a time when that order is looking rather bruised and battered.

The latest sanctions, which senior administration officials outlined on a Monday call with reporters, target Russia’s central bank. In concert with other allied nations, the effort will cut off the central bank from the international system, to prevent it from using currency reserves to insulate the Russian economy from the broader sanctions onslaught.

“No country is sanctions-proof,” one official said. “Fortress Russia will be exposed as a myth.”

Here’s how the latest effort works. The official noted that Putin has set aside a “war chest” of $630 billion in reserves, to keep the Russian economy stable. Putin had hoped to hold off the impact of other sanctions imposed over the weekend by using those reserves to keep the ruble stable.

“Our strategy, to put it simply, is to make sure the Russian economy goes backward as long as President Putin decides to go forward with his invasion,” another Biden official told reporters.

Officials noted that the United States and its allies learned over the weekend that the Russian central bank has been trying to bring back its dollar reserves from various places they are held all over the world, to use them to prop up the economy and ruble.

Freezing transactions with the central bank and disconnecting it from the global financial system, the second official said, “will significantly hinder their ability to do that.”

The idea here, notes Edward Fishman, a senior fellow at the Atlantic Council and former State Department official, is that Putin hoped to use those dollar reserves to buy rubles and ruble-backed assets. Fishman says Putin aimed to “prop up the value of the ruble” by “artificially creating demand” for it.

“He will be effectively barred from using his war chest to stem the currency crisis,” Fishman told me,” which could have “ripple effects across the entire economy.”

But this effort also appears targeted at Putin’s defenses in a deeper sense.

A big question is whether Putin has overestimated his ability to weather the economic havoc that the sanctions onslaught is unleashing. Putin’s confidence turns on both the existence of those reserves and on the idea that after his repressive autocratic reign, no amount of popular economic misery could cause him sufficient political discomfort to matter.

These new actions strike at both those shields. Cutting off those reserves mechanically removes one line of defense, of course. But the act of trying to destabilize Russia’s currency aims at Putin’s political defenses in a more fundamental sense.

“The way he built his original base of support was by stabilizing Russia after the hyperinflation and wild currency crises that were endemic to Russia in the 1990s,” Fishman told me. “What we’re seeing now is Putin’s side of the bargain in that social contract unravel entirely.”

“This is sort of a last-ditch effort to change Putin’s calculus, and to show him there are dire consequences for military action,” Fishman added. As Bloomberg’s Timothy L. O’Brien argues, this could constitute a “violent financial awakening” for Putin that he didn’t anticipate.

We have no idea whether this will work precisely because discerning Putin’s cost-benefit analysis — the point at which costs might outweigh benefits, and indeed how vulnerable he is to costs at all — is extremely challenging.

But one possibility is that widespread economic dislocation does render Putin somewhat more open to some kind of settlement. That might entail Ukraine’s agreeing to honor Putin’s demands that it refrain from further security cooperation with the West in a way he can accept.

It should go without saying that a potential halt to hostilities would most likely have been unthinkable without the extraordinary tenacity and bravery of the Ukrainian people. But the mere fact that such an aggressive multilateral sanctions effort has taken place is itself a surprising turn of events.

It suggests Putin has provoked far more concerted international efforts in the face of aggression from one of the world’s most powerful militaries than many expected.

“Once the Europeans realized that Putin really is bringing back invading other countries in today’s Europe,” said Fishman, “they came together with the United States to throw the single biggest sanctions action they could muster at the Russian government.”

Putin may still be able to weather this. But he almost certainly didn’t expect that outcome.