U.S. President Joe Biden’s debut set of sanctions on Russia for its actions over disputed Ukrainian territory hit markets with a whimper and were quickly criticized as limited in scope.
Instead of a sweeping package that crippled top Russian banks, cut its financial transactions off from the global economy, or personally singled out President Vladimir Putin, the U.S. and its allies settled on a modest “first tranche” of penalties. Markets responded with a shrug.
A Promsvyazbank PJSC bank branch in Moscow, Russia, on Tuesday, Feb. 22, 2022. The ruble tumbled the most since March 2020 after President Vladimir Putin recognized self-declared separatist republics in east Ukraine, deepening a standoff with the West.
The sanctions targeted a pair of Russian banks, VEB.RF and Promsvyazbank as well as three members of Russia’s elite with close ties to the Kremlin. The penalties also sought to freeze future purchases of Russian sovereign debt.
Yet the sanctions hardly amounted to the precedent-shattering, economy-crippling measures the U.S. and its partners long telegraphed if Russian troops were to roll across the border.
White House officials spent Tuesday afternoon trying to defend the measured approach, as questions swirled over whether their response would be enough to deter the Kremlin from mounting a bigger assault. Moscow has denied it plans to invade Ukraine and Putin has said he does not currently plan to send forces -- he has called them “peacekeepers” -- into the breakaway areas of eastern Ukraine, although the treaties he signed with the separatist leaders allow him to do so and build Russian bases.
Putin has said that the crisis could be averted if Ukraine accepted demands that included recognizing Russian sovereignty over Crimea and renouncing its bid to join NATO. Ukraine on Wednesday moved toward declaring a nationwide state of emergency.
U.S. equity futures and Asian shares rose Wednesday, suggesting investors also see the initial sanctions as limited. Demand for traditional havens like gold also eased. Brent crude, which came close to $100 per barrel a day earlier partly on worries about potential disruption to Russian supplies, was steady around $97 a barrel.
The most consequential move came from Germany, which announced it was halting certification of the Nord Stream 2 pipeline and threw into jeopardy the $11 billion project that would have solidified Russia’s grip on Europe’s energy sector. Top U.S. diplomat Antony Blinken later announced a summit this week with Russian Foreign Minister Sergei Lavrov was off.
Geopolitical Peril
“This was the beginning of an invasion, and this is the beginning of our response,” Daleep Singh, the deputy national security adviser for international economics told reporters in Washington.
For Biden, the approach carries geopolitical danger.