While President Donald Trump said on March 7 that he was “strongly considering” large-scale “banking sanctions, sanctions, and tariffs” on Russia, the threat was wholly hollow. Too much of the administration’s policy has aimed to pressure Ukraine for Trump’s threat to be taken seriously.
The Kremlin is as capable as anyone in detecting the shift of prevailing US sentiment to pro-Russian. Even as Trump was muttering about pressure against Russia, his officials were drawing up plans to lift the vast array of sanctions once a peace deal is declared, Reuters reported on March 7.
Trump’s threat of tariffs will not persuade Moscow to budge one inch. Russian exports to the US dropped by more than 80% last year, compared to the pre-war period, to about $3bn, the lowest since 1992. This represents about 10 days-worth of Russian exports to China in 2024.
The only damaging banking sanctions the US can swiftly impose would be the end of an exception from the existing measures, which allows some Russian banks to receive payments for energy exports. However, this, like potentially the even more damaging imposition of secondary sanctions on Indian and Chinese buyers of Russian oil, would push energy prices up immediately. It’s unlikely that Trump would do it now amid concerns about inflation in the US.
While Russia has little to lose from its non-cooperation, it has much to gain. On the same day as the above-mentioned Reuters report, Alexander Shokhin, head of the Russian Union of Industrialists and Entrepreneurs, told Russian media that he had discussed possible sanctions easing with the head of the American Chamber of Commerce (AmCham) in Russia, Robert Agee.
The issue of easing of the sanctions is clearly on the table, but what are Russia’s priorities?
Since the introduction of the first Ukraine-related sectoral and target sanctions in 2014, the Kremlin has officially maintained that the restrictions are illegal and do little to damage the Russian economy. The Kremlin formally takes a holistic approach, demanding a blanket lifting of the 5,000 or so measures that make it the world’s most-sanctioned country.
This is an ambitious demand and would take some time. Not only would non-US sanctions remain in place in the case of a ceasefire, but even US sanctions could not be lifted overnight.
This will force Moscow to cherry-pick the wish list it will deliver to the US (perhaps as early as the week of March 10, during talks in Saudi Arabia that the Kremlin denies will take place).
Even a decade ago, there was an understanding that some sanctions were more crippling than others. It seems the Kremlin primarily seeks the easing of the banking sanctions, which restrict Russia’s trade, an end to the oil price cap and/or blacklisting of its shadow fleet oil tankers, and a lifting of measures banning some key technology imports that aid its war effort against Ukraine.
The early sanctions almost killed Russia’s expansion of international investment. As early as January 2022, Andrei Kostin, the CEO of Russia’s second largest lender VTB, admitted to the Wall Street Journal that his company became a mere “surrogate of a bank” and that its only creditors were the state, the Central Bank, and the population.
Before the full-scale invasion of Ukraine in 2022 and the subsequent draconian sanctions, the Kremlin’s main fear was a possibility of the US sanctioning Russian ruble-denominated sovereign debt, of which about a quarter was owned by international investors.
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Russia has also considered the possibility of pulling the plug on the SWIFT financial communications system for its banks. These threats were largely mitigated by the creation of the domestic banking communications system, and the effective closure of the international markets for the Russian capital by the sanctions, which locked Russian capital in the country thus preventing capital flight and increasing demand for government debt. With the help of the state, Russian companies have successfully converted their foreign currency-denominated debt into ruble-denominated, thus reducing further risks.
With the current sticky inflation and the double-digit base rate, an opening of the international capital markets would be helpful for the Russian companies. Still, it’s hardly a priority at the moment.
Russia is not overly concerned about the freeze of its $300bn-plus sovereign assets abroad, which it didn’t bother to park beyond the reach of Western countries before the all-out war. Putin has very likely written this off as a cost of his war of aggression. The lock-in of national capital and the restrictions on Western capital leaving Russia, plus the seizure of Western assets, have made the issue of the frozen money less pressing.
However, restrictions on opening corresponding accounts dent Russian foreign trade, making imports more expensive, thus fueling inflation and reducing net profits from exports. The blacklisting of Russian banks also creates obstacles to receiving export payments.
It would be logical to assume that Russia sees a lifting of cross-border payments in reserve currencies, notably by allowing an opening of correspondent accounts in the US, UK, and European banks, as a priority.
Another priority is sanctions on oil exports, primarily on the tanker fleet and its insurers. It’s not the direct sanctions that will concern Russia but rather the constant threat of US secondary sanctions against India, China, and Turkey, the main buyers of the Russian oil.
It’s logical to assume that Russia should seek some assurances from the US that secondary sanctions will not be imposed. These derive from the so-called price cap mechanism, which allows Russia to use Western traders, insurers, shippers, and the like, only if it sells its oil for $60 a barrel or less. Its removal, if only by the US, would ease pressure on the oil exports. Even if the other Western countries maintain this restriction, they would cause much less damage because of their longstanding reluctance to apply secondary sanctions.
The Kremlin’s third primary concern is high-tech import restrictions. Russia can procure components for its military production, notably microchips, via third countries. Still, it has largely been unable to meet its needs for automated machines, high-precision equipment, power-generating equipment and parts, and maritime and aviation engines and spare parts.
In particular, Russia would want to see a respite on import bans of parts and equipment for its troubled civil aviation fleet, ground transportation, and power generation, before anything else. It might cite humanitarian reasons, implying that civilian lives would be endangered without a change.
In summary, expect Russia to have three pressing sanctions-lifting priorities:
cross-border financial transactions, including corresponding accounts
Oil tanker fleet protection from the secondary sanctions, and
high-precision, aviation, power-generating equipment and parts.
The only question? Whether the Trump administration agrees.
Alexander Kolyandr is a Non-Resident Senior Fellow at the Center for European Policy Analysis (CEPA) specializing in the Russian economy and politics. Previously, he was a journalist for the Wall Street Journal and a banker for Credit Suisse. He was born in Kharkiv, Ukraine, and lives in London.
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.
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CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America.
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