Russia’s Invasion of Ukraine: New Financial and Trade Sanctions
INSIGHTi
Russia’s Invasion of Ukraine: New Financial
and Trade Sanctions
Updated March 4, 2022
On February 24, Russia launched a full-scale invasion of Ukraine. On February 26, the leaders of the
European Commission (the European Union’s main executive body), France, Germany, Italy, the United
Kingdom, Canada, and the United States announced that specific Russian banks will be removed from the
SWIFT (Society of Worldwide Interbank Financial Telecommunication) financial messaging system, as
well as measures to prevent the Russian central bank from accessing a portion of its international
reserves. Between February 22 and February 25, the United States and allies also expanded sanctions on
Russian sovereign debt, Russia’s two largest banks (Sberbank and VTB, which account for about 50% of
banking assets in Russia), and technology exports to Russia, among other targets.
For more on U.S. and allied responses to Russia’s invasion, see CRS Insight IN11869, Russia’s Invasion
of Ukraine: Overview of U.S. and International Sanctions and Other Responses, and CRS Insight
IN11866, Russia’s Invasion of Ukraine: NATO Response.
SWIFT Sanctions
Globally, financial institutions use financial messages to send payment instructions to other banks in order
to process financial transactions, such as which accounts to debit or credit. The main international
financial messaging system used around the world is SWIFT. SWIFT is headquartered in Belgium and
owned by over 2,400 financial institutions. More than 11,000 financial institutions from 200 countries use
SWIFT's messaging services for cross-border payments. Removing key Russian financial institutions
from SWIFT makes it difficult for them to process cross-border payments. SWIFT sanctions, although
used with Iran, are generally rare. U.S. and European policymakers have discussed removing Russia from
SWIFT since Russia’s first invasion of Ukraine in 2014, although policymakers had been reluctant to do
so given potential economic disruptions. Reportedly, the purpose of excluding some but not all Russian
banks from SWIFT is in part to allow for continued payments for European imports of Russian natural
gas.
Central Bank Sanctions
The Bank of Russia has large reserve holdings, totaling $630 billion at end-January 2022. Russia, like
many central banks, holds a portion of their reserves abroad, in other central banks and commercial
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banks. The G-7 countries announced that they are blocking Russia’s access to its reserve holdings in G-7
jurisdictions. Based on the most recent data available (from June 2021), this means about half of Russia’s
reserves may be frozen (Figure 1). This number could be higher or lower, especially if Russia reallocated
its reserves during wartime planning. Assuming sanctions freeze a significant portion, Russia would have
fewer resources to fund its war effort and support its economy. Freezing reserve assets is unusual but with
precedent. The United States placed a hold on Afghanistan’s reserves at the Federal Reserve Bank of New
York in August 2021, following the Taliban takeover, and the Bank of England blocked Nicolás Maduro
from accessing its holdings of Venezuelan gold.
Figure 1. Bank of Russia Reserves: Estimating the Portion Frozen
Source: Bank of Russia data for June 2021 (latest available).
Notes: Russia may have reallocated its reserve holdings between June 2021 and February 2022. These figures should be
viewed as estimates.
Sovereign Debt and Banking Sector Sanctions
The Biden Administration also expanded sanctions on Russian sovereign debt and several Russian
financial institutions. The new sanctions restrict U.S. purchases of Russian bonds and the ability of
Russia’s largest bank (Sberbank) to transact in U.S. dollars. The new sanctions prohibit all U.S.
transactions with and block any U.S.-based assets of Russia’s second largest bank (VTB) and three other
systemically important financial institutions in Russia, as well as two Russian state investment funds
(VEB and RDIF, Russia’s sovereign wealth fund). These sanctions have exemptions, including for energy
transactions, but (combined with other international sanctions on Russia) generally restrict Russia’s
ability to borrow from Western capital markets and process transactions in U.S. dollars.
Export Controls
On February 24, the U.S. Department of Commerce’s
Categories of Technology Subject to
Bureau of Industry and Security (BIS) filed a notice of a
New Controls
new rule that restricts the transfer of certain technologies
Electronics
to Russia. In addition to imposing new restrictions on the
export of certain U.S. technologies to Russia, the new rule
Computers
restricts the export of goods produced in foreign countries
Telecommunications and Information Security
using controlled U.S. technology. More than thirty
Sensors and Lasers
countries already have, or have announced they are
Navigation and Avionics
implementing, similar controls. The new controls target
Marine
technologies critical to Russia’s defense industrial base
Aerospace and Propulsion
and intelligence services. Russia could source certain
technologies from China, although not for Russian crucial military needs. While the new controls are
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expansive, they are not comprehensive. For example, the controls exempt certain consumer electronics,
such as smart phones. On March 2, the Commerce Department expanded the export controls to Belarus
for enabling Russia’s invasion of Ukraine.
Economic Implications
The sanctions include exemptions for energy transactions, some details remain to be specified (such as
which Russian financial institutions will be removed from SWIFT), and additional sanctions could be
imposed (particularly potential trade actions by the United States and other allies). Regardless, the
economic effects of rapid, significant, and coordinated multilateral sanctions, in addition to the war, are
expected to be significant.
In Russia, the sanctions have triggered a run on Russian banks and depreciation of the ruble to record
lows (depreciation accelerates inflation). To stem capital flight, the central bank has more than doubled
interest rates (to 20%), introduced capital controls, and blocked interest payments to foreign investors.
The Moscow stock exchange has suspended trading, and many western companies are pulling out of
Russia.
Western economies are also likely to be affected. Although the direct exposure of Western banks to Russia
is relatively low, some particular banks are more exposed, including Raiffeisen (Austria), UniCredit
(Italy), Société Générale (France), and Citi (United States).
Globally, many transactions are disrupted. Russia is a major energy exporter; Russia and Ukraine account
for a third of global wheat exports; Russia is a major supplier of several metals, including titanium (used
in airplanes), aluminum (used in cars, among many applications), and nickel (used in batteries); Russia
and Ukraine are key sources of chemical gases used in semiconductor production; and several western
law and consulting firms have offices in Russia and Ukraine, among others. Disruptions in supply chains
and energy markets are likely to accelerate inflation in the West and complicate the U.S. Federal
Reserve’s decisions about raising interest rates.
Author Information
Rebecca M. Nelson
Christopher A. Casey
Specialist in International Trade and Finance
Analyst in International Trade and Finance
Disclaimer
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IN11871 · VERSION 2 · UPDATED