After the threat of sweeping sanctions didn’t deter Russia’s attack on Ukraine, U.S. Treasury Department officials and their counterparts in Europe now face the task of carrying through on their vow to make Russia’s economy and its elites pay a price. Key questions are whether sanctions will work and how to measure their impact. With inflation already at record highs, a global pandemic that keeps businesses struggling to reopen and an energy shortage throughout Europe, the right way to punish one of the world’s major economies can be complex to tease out. A first round of more narrowly targeted sanctions and threats of much more serious ones didn’t keep Russian President Vladimir Putin from announcing the military operation launched Thursday in Ukraine and warning other countries that any attempt to interfere would lead to “consequences they have never seen.” As Putin spoke, big explosions were heard in Kyiv, Kharkiv and other areas of Ukraine. Previous sanctions on Russia have aimed at individuals and entities directly involved in Russian misbehavior, but Maria Shagina, a sanctions expert at the Finnish Institute of International Affairs, said sanctions now need to take much broader aim at the economy and banking system to have any chance of influencing Russia’s behavior: “At this point, going middle of the road is not going to deter anyone further, and at this point sanctions can play an important role in trying to deter a further invasion.” She said options included full sanctions blocking all dealings with important Russian banks to cripple Russia’s financial system and steps against oil and gas companies. “If some sort of light sanctions are implemented, that is going to embolden (Putin) to go further. At least we have to try at this point to damage the economy,” she said. “I can’t predict what sanctions can do, but the best thing is not to sit and wait to react, because this is not OK.” Hours before the attack started, White House press secretary Jen Psaki on Wednesday ticked through a list of factors the Biden administration is watching, describing recent trends of rising borrowing costs for the Russian government, falling foreign investment in the country, increasing weakness of the ruble and shrinking fortunes for the “super-rich.” She added that all of this had transpired “before the bite even takes place” from the new sanctions that the U.S. and its allies started to roll out Tuesday. After Putin announced the launch of military operations against Ukraine, President Joe Biden promised the U.S. and allies would announce “further consequences” Thursday against Russia for its “needless act of aggression.” Experts with knowledge of how the U.S. imposes sanctions say the biggest determinant of the success of such measures won’t be in the valuation of Russian markets, the ruble or other assets. “To be honest, there aren’t any formalized systems, processes or procedures where Treasury actually makes that assessment, so that’s an interesting shortcoming, but it’s a reality,” said Adam Smith, who served in the Obama administration as senior adviser in Treasury’s Office of Foreign Assets Control. “The bigger question is are these going to change President Putin’s mind.” Smith stressed that the market costs of sanctions shouldn’t be the only measure of success but they should also include consideration of what they might have prevented. Citing the limited round […]

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