As G7 leaders geared up to convene in Italy for a summit aimed at bolstering support for Ukraine and countering Russia’s war machine, the United States escalated its sanctions against Russia on Wednesday.
On Wednesday, the focus of the package was on Chinese companies that assist Russia in its efforts to wage war in Ukraine. This move has increased the pressure on foreign financial institutions that collaborate with sanctioned Russian entities.
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In a bid to curtail the flow of money into and out of Russia, the sanctions also focused on the country’s financial infrastructure. The Moscow Exchange reacted swiftly by revealing its decision to halt transactions in dollars and euros upon the announcement of the sanctions.
Since the beginning of the war, the U.S. has implemented sanctions on over 4,000 Russian businesses and individuals in an attempt to disrupt the flow of money and weapons to Moscow. Despite these efforts, new companies consistently emerge as Russia adapts its supply chains. This has allowed Moscow to maintain an advantage on the battlefield, thanks to its superior firepower in recent months.
According to The Associated Press, Aaron Forsberg, the Director for Economic Sanctions Policy and Implementation at the State Department, emphasized the need to acknowledge the fact that Putin is a formidable opponent who is adept at adapting and finding allies.
According to him, sanctions imposed on Russia are constantly evolving and are subject to change. It is an ongoing process that requires constant attention and monitoring.
Companies reopening under a different name at the same address have been a problem for some time. To address this issue, one measure being taken is listing addresses for the first time. This will help to identify and prevent companies from using the same address repeatedly under different names.
The objective of imposing sanctions is to create difficulties for Russia in procuring vital technology and also to increase the cost of illegal goods. Despite their implementation, the flow of illicit goods has not been completely halted. The latest set of sanctions, announced on Wednesday, is focused on trade worth over $100 million between Russia and its war suppliers.
The United States has recently introduced over 300 fresh sanctions targeting individuals and companies in countries like China, the United Arab Emirates, and Turkey. The sanctions are primarily aimed at discouraging these entities from aiding Moscow in circumventing Western restrictions on acquiring crucial technology. The U.S. government has also warned foreign financial institutions of the possibility of sanctions if they engage in business with any Russian entity that has been sanctioned. This move highlights the American belief that Russia has transformed its economy into a war economy.
According to Treasury Secretary Janet Yellen, Russia’s military is in dire need of outside access.
Just as President Joe Biden arrived in Italy for the G7 summit, it was announced that urgent discussions were taking place regarding aid for Ukraine. One of the potential solutions being considered is the conversion of frozen Russian assets into billions of dollars of support for Kyiv.
On Wednesday, seven companies based in China and Hong Kong were singled out for shipping materials to Russia that are worth millions of dollars, some of which could potentially be used in Russian weaponry.
According to officials from the United States, China remains the primary provider of crucial components to Russia, delivering technology from both Western and Chinese sources.
Officials announced on Wednesday that a Chinese state-owned defense company was sanctioned by the U.S. for allegedly transporting military equipment to be used in the Russian defense sector.
According to Benjamin Hilgenstock, senior economist at the Kyiv School of Economics, the decision to increase pressure on the Chinese government through this move shows that the U.S. is prepared to navigate more challenging terrain.
On Tuesday, reporters were informed by John Kirby, the spokesperson for White House national security, that China’s support for the Russian defense industrial base will be dealt with. Additionally, the non-market policies of China that are causing harmful global spillovers will also be confronted.
In the aftermath of President Vladimir Putin’s invasion of Ukraine, China refrained from imposing sanctions on Russia. In fact, during Putin’s visit to China in May, he highlighted the growing strategic partnership between the two nations.
Janis Kluge, a specialist in Russia sanctions at the German Institute for International and Security Affairs in Berlin (SWP), stated that the Chinese leadership does not have any inclination towards ensuring the success of these sanctions.
Kluge stated that Beijing is hesitant to cease a lucrative trade that generates significant revenue, and they are avoiding increasing pressure on Putin during this conflict.
Russia highly depends on imports from China since the latter is a significant producer of essential components, even for Western companies. Moreover, Chinese businesses serve as intermediaries for the sale and delivery of Western parts to Russia.
According to Hilgenstock, although Chinese technology has been discovered in the conflict zone of Ukraine, the majority of the parts used in advanced weaponry such as drones and ballistic missiles still originate from Western countries. He emphasizes that these components are predominantly sourced from these nations.
Officials have revealed that, in addition to targeting businesses in China, the United States has also set its sights on those in Turkey and the United Arab Emirates. These companies have been identified as sending critical items to Russian companies, some of which have already been sanctioned.
In an announcement made in December, the White House stated that foreign financial institutions could potentially face sanctions if they collaborate with entities in Russia’s defense sector. However, the latest development in this regard is that these institutions could now potentially face the same consequences if they work with any sanctioned Russian entity, expanding the scope of the previous announcement.
While en route to the G7 summit, Jake Sullivan, President Joe Biden’s chief foreign policy advisor, informed journalists that the Treasury Department has sent a warning to China and other nations. The message conveyed that they are in grave danger of violating Treasury regulations and consequently falling under a sanctions regime.
Analysts have pointed out that the threat of secondary sanctions is a powerful tool that instills fear among the concerned parties.
According to Kluge, even though President Xi Jinping might not be keen on supporting Western sanctions on Russia, Chinese banks have always been cautious about not becoming a target of secondary sanctions. This is because such sanctions can prove to be expensive for them. Kluge further cited instances where Chinese banks have terminated their relationships with Russian clients to avoid any potential risks.
The purpose of this package is to impede the growth of Russia’s energy industry and potential revenue streams, such as Arctic liquefied natural gas initiatives that received significant LNG technology from a Chinese firm.
The package also aimed to hold accountable those who played a role in the coerced transfer and expulsion of Ukrainian children to Russia. As a result, five individuals in Russia and Russian-occupied Ukraine faced sanctions for their involvement in the forced militarization and re-education of the children, as well as their facilitation of Russian passports for them.
