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‘Do the right thing’: how the US and its allies teamed up to punish Putin

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WASHINGTON (AP) — Just days before Russia invaded Ukraine on Feb. 24, President Joe Biden quietly dispatched a team to the European Union headquarters in Belgium.

These were not spy chiefs or generals, but experts at reading fine print and tracking the flow of money, computer chips, and other goods around the world. His mandate: inflict maximum pain on Russian President Vladimir Putin by making it more difficult, if not impossible, for him to finance a protracted war in the Ukraine and by denying him access to the fundamental technologies of modern warfare.

There were intense meetings in February in Brussels, Paris, London and Berlin, often for six hours at a time, as allies tried to work out the details of a historic economic blockade, according to Biden administration officials. Some of the exports the US wanted to ban were met with reluctance by the Europeans, who would essentially be telling their own companies to give up several billion dollars in annual revenue from Russia.

When there was an impasse, US negotiators put Commerce Secretary Gina Raimondo on the phone.

“You can say ‘no’ now, but when the body bags come out of Ukraine, you don’t want to be a holdout,” Raimondo said he told his allied counterparts. “Do the right thing.”

They all signed, and before the invasion.

Raimondo said that what ultimately prompted the deal and the fast timeline was the threat of Putin’s imminent attack on Ukraine.

“We all quickly understood that it was time to come together and stay together,” he said. “If you cause enough pain, isolate Putin, he will end this war.”

The world’s richest nations, outside of China, are directly confronting Putin on their preferred terms. They have imposed sanctions where their strengths intersect with Russia’s vulnerabilities. Russia relies on the US, EU, Japan, South Korea and Taiwan for cutting-edge technologies and investments, so the allies decided to isolate Moscow.

It is a strategic move designed to trap Putin in a downward spiral, while foreign investors withdraw their money in response to the atrocities. It is also a remarkable display of unity that could be tested in the coming weeks by the allies’ own reliance on fossil fuels.

A group of economists estimated Thursday that EU countries have transferred more than 13.3 billion euros ($14.7 billion) to Russia for oil, natural gas and coal since the war began, essentially financing Putin’s war machine. .

While the allied talks in the run-up to the war were critical, the EU did not just wait for US instructions to act. Members of the bloc had been consulting for months.

An EU diplomat, who spoke on condition of anonymity to discuss the internal talks, described possible sanctions including an export ban in an interview in January, noting that the EU had held together its coalition to enforce the sanctions since Russia’s 2014 occupation of parts of the Donbas region of Ukraine.

But this time, the US and EU responded to Russia’s aggression with a novel set of policies to cripple Putin’s fighting ability by denying him access to semiconductors, computers, telecommunications equipment, lasers and sensors that are part of comprehensive war material.

This is a supply chain constraint that will force Russia to raid existing planes, tanks, and other equipment for parts, essentially eroding its military and economic capabilities. The same US and EU officials facing their own supply chain challenges after the pandemic found a way to amplify the problem for Russia through trade regulations.

In a sign of initial success, US officials point to the closure of Lada’s auto plants in Russia and the more than 300 companies that have stopped doing business with Russia. The companies are not just Starbucks, but chipmakers like Germany’s Infineon which said it has stopped all direct and indirect deliveries to Russia, as well as technical support.

Within days of the invasion, the Allies blocked the foreign assets of Russia’s central bank. Two senior Biden administration officials, who were not authorized to publicly discuss planning for the strategy and spoke on condition of anonymity. he said this option was not initially presented to allies out of concern that Russia might move its money ahead of time. They waited to introduce the asset freeze until the invasion began and the images of bombing and death forced the Europeans to agree almost immediately.

The freeze rendered half of the more than $600 billion in Putin’s war chest unusable. While the Russian stock market has been closed and the value of the ruble has plummeted, the sanctions are designed so that the financial effects harden over time. As long as Ukraine is able to hold out with military aid against serious casualties, sanctions will do more to wear Putin down.

EU Commission Vice President Valdis Dombrovskis on Thursday hailed the “very good coordination” between the nations and said the sanctions “are strong. Russia’s financial markets are about to collapse.” He also pointed out that sanctions create costs for the allies, although the price is far less than the consequences of expanding the war.

However, with each new round of sanctions, the unity of the 27-member EU is increasingly tested. If a ban is imposed on Russian oil and gas, Germany and Italy, both heavily dependent on Russian energy, will be in a difficult position to contain the push from several eastern member nations, such as Poland and the Baltic states, they want to hit Putin as hard as possible as soon as possible. The United States is less reliant on Russian oil and natural gas, making it easier for Biden to ban those imports earlier this month.

There is also the risk that sanctions will fail to stop Putin or that Russia may still find ways to bring goods into its economy. Trade data analyzed by ImportGenius shows that China has supplanted Germany in 2021 as the top source of exports to Russia, and US officials say Russia has asked the Chinese government for help.

On Twitter, Olivier Blanchard, a former chief economist at the International Monetary Fund and now a fellow at the Peterson Institute for International Economics, compared the sanctions to the bombing of German factories during World War II. Those bombings upset the German war machine in ways that made it impossible to prolong a protracted fight, and economists had a role in choosing the targets.

Despite all that has been done, the question remains whether it is enough.

Blanchard recommends expanding export controls on defense-related production to “anything that disrupts production” in the Russian economy. If Russian-made refrigerators need an EU-made gasket, restricting access to that gasket makes it harder for the Russian economy to function, he said.

Tania Babina, a finance professor at Columbia University who was born in Ukraine, said sanctions tend not to stop dictators and warned that Putin could ultimately entrench himself further unless the US and EU take action. more aggressive. She said the Europeans must add sanctions that ban the use of Russian oil and natural gas.

“He is going to throw everything to win, he will send his grandmother to fight if necessary,” Babina said. “He cannot lose Ukraine. That is why it is so important to cut off Russia’s energy export revenue.”

But Babina pointed out that there is another, much more chilling cost to the allied sanctions strategy: Ukrainian lives.

“How many people do we let die before Putin runs out of assets?” she asked.

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Associated Press writer Raf Casert in Brussels contributed to this report.

Josh Boak, The Associated Press

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