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Highlights

G7 finance ministers warn of 'massive, immediate' penalties

Russian banks expected to be top targets of initial response

Platts Analytics sees direct energy sanctions as less likely

Russia's top banks are likely to be a key target of Western sanctions in response to a potential invasion of Ukraine, with significant market impact spreading across borders, Center for a New American Security experts said Feb. 14.

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The panel predicted the US, EU and UK governments would act with relative cohesion, leveling penalties within days.

The experts project the 55 Bcm/year Nord Stream 2 gas pipeline to Germany would be canceled -- as US and European leaders have threatened in recent weeks -- but no other direct energy sanctions, at least immediately.

G7 finance ministers said in a joint statement Feb. 14 that "any further military aggression by Russia against Ukraine will be met with a swift, coordinated and forceful response."

"We are prepared to collectively impose economic and financial sanctions which will have massive and immediate consequences on the Russian economy," the G7 statement said.

Adjunct fellow Eddie Fishman, who advised on sanctions issues in the Obama administration's State Department, predicted at the CNAS event that the US response would start strong and potentially escalate further to even "Iran-level sanctions" within several months.

"I don't think the Biden administration is going to do that right away, but I do think that's kind of the course of events that will unfold if Putin makes this decision to invade in the coming days or weeks," Fishman said. It was not "tenable for energy to be off the table long term if Russia were to invade Ukraine."

Listing Russia's top state-owned banks on the Treasury Department's blocked list would have "enormous impact" on the country's economy, said Maria Shagina, a visiting fellow at the US Center for Politics and Power.

The economic blowback could cut across borders and sectors, according to Tom Keatinge, director of RUSI's Centre for Financial Crime and Security Studies.

"I'm not sure for how long economies would be prepared to take that kind of pressure," Keatinge said. "The reality of this is the integration between Russia and Western economies means that there will need to be a degree of self-harm if we are going to create the sort of pressure on Russia that Western leaders -- particularly UK and US leaders -- have been promising."

CNAS alum Elizabeth Rosenberg, a top sanctions official in the Biden administration's Treasury Department, met with European officials in the week ended Feb. 11 to discuss potential sanctions coordination. She led CNAS's Energy, Economics and Security program after serving in the Obama administration.

US President Joe Biden has vowed to impose "swift and severe consequences" on Russia if it attacks Ukraine, including financial sanctions to restrict foreign capital and export controls to block US software and technologies.

Other options include banning Russia from dollar trades and blocking access to the international financial messaging service SWIFT, both of which analysts see as less likely because they would have massive consequences for energy markets and the global economy.

US senators are still negotiating their own sanctions bill, but the White House holds broad executive power to impose sanctions.

Platts Analytics does not expect the US to impose secondary sanctions on Russian oil customers, given Europe's heavy dependence on the flows and oil prices already at $90/b.

"The West is unlikely to jeopardize such large volumes," Platts Analytics said.

Russia was the No. 3 oil supplier to the US in November after Canada and Mexico, US Energy Information Administration data showed Jan. 31, as the Ukraine crisis threatens to disrupt the flows.

Platts Analytics expects any disruption in the Russian crude to have a minor effect, as US refiners could backfill by easing exports of US Gulf Coast sour crudes, such as Mars. Lower US imports of Russian oil feedstocks would have a bigger impact, but Gulf Coast refiners could run Canadian or Latin American heavy grades at the cost of margins.

Excerpt from:
Russia could face 'Iran-level sanctions' within months of potential Ukraine invasion: analysts - S&P Global