US Sanctions: Swift Measures a Concern, but All Contingent on an Invasion

• Key component of the Washinton Post article is the possible Sanctions measures:
• “Sweeping sanctions on top Russian military and government officials, including Putin and other leaders, as well as key banking institutions”
• “If Moscow engages in hostilities against Ukraine. It would also target companies in Russia that offer secure messaging systems such as SWIFT, which banks use to exchange key information with other financial institutions.”

Analysis:

• Imposition of sanctions on top Brass is not majorly new, but the addition of Putin is interesting. The impact would depend on scope for the top officials and be unlikely to affect Putin - so his inclusion is mostly symbolic.
• Banning transactions on Russian debt in the secondary market would be problematic, making foreign participation in OFZs more difficult. Foreign participation is currently very low, however, and the CBR has said it has many measures capable of underpinning the OFZ market in the case of more debt measures.
• Measures to impede SWIFT transactions would be a problem for Russia and would again depend on scope. These likely carry the most weight as fully cutting Russia off from Wester transactions would be massively detrimental, but shift the burden onto ordinary citizens, which may be construed as misdirected or overly harsh.

Conclusion:

• Nevertheless, these sanctions are contingent on Russia invading Ukraine – which is not our base case.
• We see the more likely trajectory to be a resumption of the status quo (elevated tensions) and protracted talks with an eventual resolution.
• The formalization of a sanctions framework is a strategic show of force from the US amid talks, countering Russia’s security proposals with consequences of its own and drawing its line win the sand.