US implements new sanctions targeting banks supporting Russia's war in Ukraine

In a significant move on Friday, the United States announced its intention to impose sanctions on foreign banks aiding Russia in its conflict with Ukraine. President Joe Biden is set to sign an executive order authorizing secondary sanctions against financial institutions supporting Russia’s defense industry.

The world’s largest economy aims to convey a decisive message to financial entities, emphasizing the stark choice they face. A senior US official, speaking on condition of anonymity, stated that banks globally must decide between engaging with Russia’s military-industrial complex or maintaining connections to the extensive US financial system.

Despite Russia’s efforts to reduce dependence on traditional currencies following the 2022 invasion of Ukraine, China’s major banks have extended significant credit to Russia in renminbi. The US hopes that European and American banks, even if not directly invested in Russia, will influence their partners operating in the country.

While Russia’s economy has felt the impact of Western sanctions, it continues to grow, with the International Monetary Fund forecasting a 1.1 percent growth for 2024. Western powers have targeted Russia’s oil exports, imposing a cap at $60 a barrel, resulting in a 32 percent reduction in tax revenue from oil and petroleum exports between January and November.

The new round of secondary sanctions comes as the Group of Seven industrialized democracies hesitates to seize Russian government assets to support Ukraine—a measure supported by the US. The possibility of a reduction in direct US assistance to Ukraine looms, pending Congressional approval, further complicating the situation in the region.

In a parallel development, the United States is set to ban products originating from Russia, even if substantially transformed elsewhere. This includes a ban on diamonds originating from Russia but processed elsewhere, aligning with a recent European Union decision.

Despite efforts to soften the impact through trade with third countries, Russia has faced challenges from the sanctions, with Central Asian nations experiencing a surge in technology shipments. The United States’ increased use of secondary sanctions, while effective, raises concerns among policymakers about potential repercussions on the global economy.