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Governments in the US and Europe are seeking to disrupt Russian exports in response to the country’s aggression in Ukraine, unveiling fresh sanctions targeting its development bank and export credit agency, and halting the approval of the Nord Stream 2 gas pipeline. 

The measures were announced yesterday, following President Vladimir Putin’s statement that Russia now recognises Donetsk and Luhansk as independent from Ukraine. Russia immediately started moving troops into the two regions. 

An executive order issued by US President Joe Biden targets state-owned Promsvyazbank (PSB) and the development bank VEB, including its subsidiaries Eximbank of Russia, the Russian Agency for Export Credit and Investment Insurance (Exiar) and the Russian Export Center.  

The UK also announced sanctions on PSB, as well as on Bank Rossiya, the Black Sea Bank for Development and Reconstruction, IS Bank and Genbank, while Germany confirmed it has put a halt to the approval of the Nord Stream 2 gas pipeline. 

An EU sanctions package targeting Russian officials has also been unanimously agreed. Details have not yet been published as of press time, but diplomat Josep Borrell says they will target Russia’s ability “to access our capital markets and financial services”. 

 

US targets Russian trade 

The order means that US assets of the institutions are blocked and US entities are prohibited from dealing with the banks and any entity of which they own 50% or more, unless authorised by the US Office of Foreign Assets Control. 

VEB, which has US$53bn in assets, “occupies a unique role in Russia’s financial system as the servicer of Russia’s sovereign debt, financier for exports, and a funding source for investment projects with a loan portfolio of over $20 billion”, the US Treasury says in a statement.  

The Treasury department says PSB is closely connected to Russia’s defence sector and that the Russian government has tasked the bank “with providing credit to entities under US and partner nations’ sanctions so that other lenders, namely Sberbank and VTB Bank, can offload the risk of conducting business with sanctioned entities”. 

The White House says the measures against the banks will “shut them out of the global financial system and foreclose access to the US dollar”.  

VEB and PSB have been in Washington’s crosshairs for several weeks. Both were included in a draft sanctions bill put forward by Democrats in the US Senate last month. 

Five Russian-flagged vessels owned by a subsidiary of PSB, including two crude oil tankers, were also sanctioned.  

Three of the vessels are currently on voyages outside of Russia, according to shipping data provider MarineTraffic. Cargo vessel Baltic Leader is currently docked at the French river port of Rouen, crude tanker Linda is en route from Oman to Malaysia and the Pegas tanker was last seen anchored near Marmara in Turkey.  

 

Germany sinks Nord Stream pipeline 

One of the first measures taken following Putin’s announcement was by German Chancellor Olaf Scholz, who said the approval of Nord Stream 2 – a vast pipeline carrying natural gas from Russia to Germany – would no longer be able to achieve certification. 

“Without this certification Nord Stream 2 cannot go into operation,” Scholz said at a press conference in Berlin. When contacted by GTR a spokesperson for Nord Stream said they are unable to comment until appropriate information has been received from authorities. 

Efforts to make the pipeline operational have faced numerous obstacles in recent years, including US sanctions on companies involved in its funding or construction. 

One of the final hurdles appeared to have been cleared in January, when Nord Stream established a German subsidiary – Gas For Europe GmbH – that would own and operate the section of the pipeline and infrastructure located within German territory. 

But before the German government can grant the project certification, it must complete an analysis of supply security. By withdrawing that analysis, Scholz is able to block the pipeline’s route to approval. 

The move was immediately welcomed by Ukraine’s minister of foreign affairs, Dmytro Kuleba, who described it as “a morally, politically and practically correct step” in a statement on Twitter. 

Russian representatives were quick to warn that halting certification would drive further increases in gas prices, a pressing issue as Western nations continue to grapple with skyrocketing energy costs. 

“Welcome to the brave new world where Europeans are very soon going to pay €2,000 for 1,000 cubic metres of natural gas,” said former President Dmitry Medvedev.  

When questioned by reporters on the likely impact of halting pipeline approval, German Chancellor Scholz played down the country’s dependence on Russian gas and emphasised the growing role of renewables in its energy mix. 

“If you look at the energy supply situation in Germany, you will find that around a quarter of our energy supply is based on gas, and part of this – around half – comes from Russian imports. The other imports come from Norway, the Netherlands and many other parts,” he said. 

“We started long ago to reduce our dependency on gas by deciding to go carbon neutral within almost 25 years. Germany will convert its energy production to electricity-based, by massively expanding the generation capacity from offshore wind power, wind power on land and solar energy.” 

 

UK and EU take action 

The UK has also announced sanctions on PSB, Bank Rossiya, the Black Sea Bank for Development and Reconstruction, IS Bank and Genbank, though has not targeted development bank VEB. 

With the exception of PSB, the lenders are relatively small institutions connected to Crimea, the Ukrainian territory which Russia invaded and occupied in 2014.  

“We are prepared to go much further if Russia does not pull back from the brink,” UK foreign secretary Liz Truss says. “We will curtail the ability of the Russian state and Russian companies to raise funds in our markets, prohibit a range of high tech exports, and further isolate Russian banks from the global economy.” 

Details of the EU’s measures have not yet been published as of press time, but European Commission President Ursula von der Leyen says they will also target trade and financial services. 

Trade between the EU and Donetsk and Luhansk will be banned, while individuals, companies and banks involved in Russia’s aggression will be targeted by sanctions, she says. The EU will also “limit Russia’s ability to raise capital on the [European] financial markets”. 

The toughest sanctions are expected to be held in reserve in case Russian troops attempt to seize further territory from Ukraine. The White House warned yesterday that “any institution in the financial services sector of the Russian Federation economy is a target for further sanctions”.  

“Over 80% of Russia’s daily foreign exchange transactions globally are in US dollars and roughly half of Russia’s international trade is conducted in dollars. With this action, no Russian financial institution is safe from our measures, including the largest banks.” 

Reporting by Jacob Atkins and John Basquill.