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Congr ssionol Research Serv'c<
informingi Lh leiativ debatLsic 1914
Updated February 22, 2023
Russia's War on Ukraine: Financial and Trade Sanctions
In February 2022, Russia launched a new, expanded war on
Ukraine. The United States and allies responded with wide-
ranging sanctions on Russia that are unprecedented in terms
of their comprehensiveness, coordination, and speed. Many
of the sanctions implemented by the Biden Administration
and the 117th Congress target Russia's financial and trade
relationships with the United States. The 118th Congress
might conduct oversight of these and other sanctions and
consider legislation that further shapes U.S. sanctions on
Russia.
Financial Sanctions
The U.S. dollar and financial system are widely used to
process cross-border transactions, and U.S. financial
sanctions are a particular source of U.S. economic leverage.
Since February 2022, financial sanctions have targeted
Russia's central bank, financial sector, and access to
international capital.
Central Bank Reserves. In February 2022, the United
States, in coordination with the European Union (EU),
United Kingdom, Canada, and Japan, blocked the Russian
central bank's access to its holdings of foreign exchange
reserves. About $300 billion of Russia's central bank
reserves were frozen (Figure 1). The main funds that were
not frozen were reserves held in China and gold stored in
central bank vaults.
Figure 1. Bank of Russia: Frozen Reserves
Held outside Russia 4 * Held inside
Russia
FROZEN
7s Oia a
UK, ~istia,(,and. 4;6%13.8% r 1r n r
vt .t 21.7%
Other countr s & international
organizations 10.7%
Source: CRS using Bank of Russia data forJune 2021 (latest
available).
Notes: Russia's central bank may have reallocated its reserve
holdings between June 2021 and February 2022. These figures should
be viewed as estimates.
In December 2022, Congress passed legislation to limit the
usability of the Russian central bank's gold, by establishing
sanctions on foreign persons who participate in significant
transactions with Russian gold (P.L. 117-263 §5590).
Congress also passed legislation prohibiting U.S.
transactions with Russia involving International Monetary
Fund (IMF) reserve assets (called special drawing rights
[SDRs]) (P.L. 117-185), a resource that central banks might
utilize during periods of economic stress.
Financial Messaging Systems. At the direction of the EU
and with support from the other G7 countries, the Society
for Worldwide Interbank Financial Telecommunications
(SWIFT) in 2022 removed several Russian financial
institutions from its system, including the largest bank in
Russia (Sberbank). Globally, financial institutions use
SWIFT to send payment instructions to other banks to
process payments; more than 11,000 financial institutions
from more than 200 jurisdictions use its services. Removing
key Russian financial institutions from SWIFT makes it
difficult for them to process cross-border payments. Some
but not all Russian banks were removed from SWIFT to
allow for continued payments for European imports of
Russian natural gas. Russia has substantially reduced
natural gas flows to Europe since the start of the expanded
war.
Russian Financial Institutions. The United States has
frozen U.S.-based assets of and imposed restrictions on
transactions with Russia's two largest banks, Sberbank and
VTB, whose assets account for more than half of the
Russian banking system. The United States has also applied
full blocking sanctions on five other systemically-important
financial institutions in Russia (Alfa Bank, Bank Otkritie,
Promsvyazbank, Rosbank, and Sovcombank), and debt and
equity restrictions on three systemically-important financial
institutions (Credit Bank of Moscow, Gazprombank, and
Rosselkhozbank). Additionally, the United States
sanctioned the Russian Direct Investment Fund (RDIF, a
Russian sovereign wealth Fund) and VEB (a Russian state
development fund), among others. Overall, U.S. sanctions
restrict dealings with 80% of Russian banking sector assets.
In general, the sanctions make it hard, if not impossible, for
Russian financial institutions to process transactions in U.S.
dollars. U.S. allies have imposed similar restrictions on
Russian financial institutions.
International Capital Markets. The Biden Administration
expanded sanctions on Russian sovereign debt (bonds
issued by the Russian government), including prohibiting
U.S. financial institutions from processing debt payments
from the Russian government to foreign investors. As a
result, Russia defaulted on its debt in June 2022. The
Administration also banned new investment in Russia.
Coordinated with allies, these sanctions limit the ability of
Russia's ability to access financial resources from the
United States and allies.
Trade Measures
U.S.-Russia trade flows were relatively low before Russia's
expanded war on Ukraine: Russia accounted for less than
1% of U.S. exports and about 1% of U.S. imports in 2021.
The United States, however, is an important source of
technology used in a variety of goods imported by Russia,
and coordination on trade restrictions with allies amplifies
the significance of these restrictions.](ViewImageLocal?handle=hein.crs/govekqz0001&div=1&collection=&method=preview&ext=.png&size=3)
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