The US Treasury is set to broaden its secondary sanctions program on Russia, treating foreign financial institutions interacting with sanctioned Russian entities as direct partners of Russia’s military-industrial base. This move comes as the US perceives Russia as operating a war economy following its invasion of Ukraine, with recent sanctions impacting war-related imports into the country.
US Treasury to Expand Secondary Sanctions on Russia
The US Treasury is set to expand its secondary sanctions program on Russia this week. The new measures will treat any foreign financial institution transacting with a sanctioned Russian entity as if it is working directly with Russia’s military-industrial base. This expansion will increase the scope of an executive order from December, which initially allowed sanctions on around 1,200 entities connected to Russia’s defense sector, to now cover over 4,500 entities.
This expansion reflects the US view that Russia has transitioned into a war economy following its full-scale invasion of Ukraine in 2022. The updated sanctions aim to deter foreign banks from facilitating transactions with Russian customers, especially those linked to the Kremlin. Analysts note that recent sanctions have already reduced war-related imports into Russia due to increased risk for international banks.
The Treasury’s efforts may impact financial institutions worldwide, particularly in countries like China, which has developed closer ties with Russia since the invasion. Russia has been looking to strengthen financial ties with China, although Chinese banks remain cautious, possibly due to fears of US sanctions.
The move coincides with a recent reshuffle in Russia’s defense leadership. President Vladimir Putin appointed Andrei Belousov as the new defense minister, aiming to make Russia’s substantial defense spending more efficient and less susceptible to Western sanctions.
John Kirby, a spokesperson for the US National Security Council, announced forthcoming new sanctions and export controls targeting Russia, emphasizing ongoing efforts by G7 countries to utilize the value of frozen Russian assets.
World Bank Raises Global Growth Forecast Amid Trade Concerns
The World Bank has raised its global economic growth forecast for 2024 to 2.6%, up from its January projection of 2.4%. However, the World Bank warns that the rise of new trade barriers and protectionist policies threatens long-term global growth. The latest Global Economic Prospects report indicates that global inflation is moderating more slowly than expected, potentially leading central banks to delay interest rate cuts.
The resilience of the US economy has contributed to the brighter outlook, with advanced economies growing at an annual rate of 1.5%. However, growth in emerging markets and developing economies remains robust, led by countries like China and Indonesia. Despite the improved outlook, the global economy still faces uncertainties from ongoing conflicts, including Russia’s war in Ukraine and the potential for a wider regional conflict stemming from the situation in the Gaza Strip.
‘Sanctions Hole’ Sustains Russian Imports Despite Western Efforts
Even with extensive Western sanctions, Russia continues to import Western goods through indirect routes. Research shows that imports to Russia have rebounded close to prewar levels, facilitated by countries not participating in the sanctions, such as China, Turkey, and UAE. Notably, German vehicle exports to Kyrgyzstan have surged by 5,100%, suggesting goods are being rerouted to Russia.
The US and EU have intensified efforts against companies and banks aiding these imports. The US is pressuring banks to stop facilitating trade that supports the Russian military. However, resistance from key intermediary countries like the UAE highlights the challenges in enforcing sanctions effectively.
Greek shipowners have also played a significant role in enabling Russia to circumvent oil-related sanctions. Greek shipping companies have sold numerous old vessels to Russia, which are used by Russia’s “dark fleet” to transport crude oil, undermining Western efforts to restrict Russia’s oil trade.
As G7 leaders convene in Italy, strategies to tighten sanctions and better support Ukraine will be critical topics of discussion. Analysts and officials acknowledge that the impact of current sanctions on Russia has been slower than anticipated. Measures such as reducing the oil cap and better enforcing trade restrictions may be necessary to exert more pressure on Russia’s economy.
