After the wet firecracker that was the modest package of sanctions unveiled Tuesday by Boris Johnson, the last salvo of this evening certainly had a little more weight.
The intention to impose an asset freeze on Russian banks, including the country’s second largest lender, VTB, is significant.
VTB, along with its biggest rival Sberbank, is a key institution that both lends to and receives deposits from millions of ordinary Russian citizens.
Moreover, by excluding Russian banks from the UK financial system and preventing these organizations from accessing sterling, Britain will restrict access to another hard currency that they could have reached now that it has become clear that the United States wishes to deprive Russian lenders of access to US dollars.
As Mr Johnson noted, given that around half of Russia’s trade is now in US dollars and pounds sterling, this will have an impact.
The Prime Minister also referred to excluding Russian SWIFT banksthe international communications and messaging system used by more than 11,500 banks in 200 countries around the world, which would be another difficult option.
Mr Johnson has claimed that decision is not on the table, but clearly not everyone agrees.
The Prime Minister’s specific reference to “G7 unity” underscored this and, with Germany seen as opposed to the measure, it is unlikely to happen.
This is because Russian banks are deeply embedded in the global financial system and there would undoubtedly be ripple effects.
This would for example prevent the Russian gas supplier Gazprom from receiving payments from Western customers, notably Germany, for its gas.
It could become academic if, in the next few days, the Western allies put in place an embargo on Russian energy exports – but it is undoubtedly a factor influencing German thinking.
Nor is it clear that the expulsion of Russian banks from SWIFT would have the same impact on the Russian economy as when in 2012 Iranian banks were excluded from the system.
Once it would have been.
When Russia annexed Crimea in 2014, then-finance minister Alexei Kudrin said evicting Russian lenders from SWIFT would reduce its GDP by 5% by hurting its ability to trade.
Since then, however, Russia has developed its own financial transfer system, called the Financial Message Transfer System (SPFS), to enable it to continue to facilitate payments – although these are thought to be largely national parties and with non-Western trade partners.
Probably more important in the short term will be the government’s decision to ban Russian companies from raising capital in UK markets.
Russian companies have been very active in raising capital through IPOs in recent years, such as the $1.7 billion IPO in London last March of retailer Fix Price.
London bankers are believed to have worked on a large deal pipeline involving Russian companies.
They will now have to seek their money elsewhere.
The UK has also taken steps to prevent the Russian state from raising capital in London via sovereign debt.
However, this is probably less serious than it seems, because – as with its decision to implement an alternative to SWIFT – the Russian government has been preparing for this moment for some time.
Strong oil prices over the past six months helped Moscow post a balance of payments surplus of $120.3 billion last year and it has also been actively building up its reserves of oil. gold and currencies.
These now stand at a record $643 billion and, significantly, a smaller proportion of this amount is in US dollars than before.
Moreover, Russia’s debt-to-GDP ratio is incredibly low, at less than 20%, compared to 95% for the UK, 98% for France and 133% for the US.
Moscow needs much less than these economies to raise funds on the sovereign debt markets.
Surprisingly, as more and more Russian lenders are targeted, many will be surprised that neither Gazprom nor Rosneft, Russia’s two big energy companies, have received more punitive treatment.
This may be because BP owns 20% of Rosneft and the government will be wary of hurting a company in which one of the biggest companies in the UK – a major stake in long-term pension plans of millions of Britons – holds a strategic stake.
But it’s still surprising.
Some of the other measures announced were largely symbolic.
Banning the airline Aeroflot – a major sponsor of Manchester United – from the UK will make little difference to the carrier’s finances, although it echoes, quite sharply, the ban that former US President Ronald Reagan imposed Aeroflot from his country in 1982 in response to the former Soviet Union’s crackdown on the Polish labor movement.
The ban lasted until 1990 and caused great harm to Aeroflot, which at the time was one of the largest carriers in the world.
More significant is the much longer and longer list of individuals currently facing sanctions and asset freezes.
Among those currently targeted are Denis Bortnikov, the vice-president of VTB; Kirill Shamalov, Vladimir Putin’s former son-in-law and once Russia’s youngest billionaire; Elena Georgieva, chairwoman of the board of directors of Novikombank and Petr Fradkov, son of a former Russian prime minister and chairman and CEO of Promsvyazbank.
These are all individuals with jet-setting, globe-trotting lifestyles, who will no longer be able to shop at Fortnum and Mason or Harrods and who will no longer be able to send their children to public schools in the future. elite in the UK.
It is also clear that with the US unveiling its own new sanctions list today, Western allies are coordinating their actions more effectively than in the past.
There will however be concerns, as some MPs have pointed out, that the families of some people do not appear to have been overtly targeted – while there will also be bewilderment that some prominent oligarchs with significant UK assets , including Chelsea FC owner Roman Abramovich. , have not yet been added to the sanctions list.
Although it is a much heavier package of sanctions than the one unveiled earlier this weekthis may not have the desired effect.
Because not only has Russia been preparing for this moment for many years, but it also has potential allies ready to help, including China.
Beijing has supported Russia in the past, most notably during the annexation of Crimea in 2014, when it again stands ready to help via resource imports and loans from its banks to Russian companies.
Russia will be only too happy to increase its oil and gas exports to China, a major energy importer, while happily receiving payment in renminbi.
China and Russia have made it clear that they would like to see the price of crude in currencies other than the US dollar and if the renminbi were to become a recognized currency in which crude is denominated, it would seriously undermine the greenback’s hegemony in as the only reserve currency in the world.
More sanctions and penalties against Russian oligarchs and businesses may well be needed in the days and weeks ahead.