How new sanctions could cripple Russia’s economy

Russia seized Crimea in 2014 Western sanctions have failed to bite or act as a credible deterrent against Russian aggression. The new measures targeting Russia’s financial system announced by America, the and other allies on February 26th change that. They have come too late to prevent an invasion of but they are capable of triggering financial mayhem in Russia because they target its central bank and may lead to the freezing of its $630bn of foreign-exchange reserves. This could trigger a run on Russia’s banks and currency, and will cause shudders in global markets and a further spike in energy prices. It may also trigger Russian retaliation. On February 27th Russia said the sanctions were “illegitimate” and indicated that Russia’s nuclear forces had been put on a heightened level of alertness in response. The West’s deployment of this economic weapon will also be watched with slack-jawed shock in , which has $3.4trn of reserves and which will now be rethinking how to resist Western pressure in the event of a war over Taiwan.Up until now have been long on macho rhetoric about crushing Russia but short on clout. For example, the penalties on oligarchs and their offshore wealth have led some tycoons to call for an end to the bloodshed, but not changed decision-making in the Kremlin. Meanwhile limits on Western technology and industrial exports to Russia will take months or years to have an effect. Even American sanctions announced on February 24th against Sberbank and Bank, which together hold 75% of the Russian banking industry’s assets, were a serious but not killer blow, particularly since energy transactions were exempted. Russia’s “” financial system looked capable of withstanding the economic weapons that the West dared to use.