On June 12, 2024, the United States (US) Department of the Treasury announced that it would impose new sanctions on more than 300 entities and individuals in order to cut off Russia’s access to the products and services it needs to support its war efforts in Ukraine. It is noteworthy that this decision was taken before the G7 leaders’ summit in Italy.
U.S. officials have expressed concern about Russia’s ability to supply products necessary to produce semiconductors, optical equipment, software, and weapons systems. The sanctions target electronic suppliers in China and other countries. However, it is also noted that secondary sanctions are ineffective, and banks of other countries that have agreements with Russian entities have been warned to cut off access to dollars.[1]
In this regard, US Treasury Secretary Janet Yellen announced that sanctions against Russian banks have been expanded and that these sanctions include branches and subsidiaries in China, India, Hong Kong, Kyrgyzstan and other regions. Yellen stated that these sanctions increase the risk of financial institutions engaged in Russia’s war economy and reduce Russia’s ability to benefit from foreign technology, equipment software and information technology services.[2] He also stated that new secondary bank sanctions against Russia continue. He stated that large banks have withdrawn from Russia, but Russia has turned to smaller institutions.
The U.S. Treasury Department is trying to identify small banks that support military production and is asking for help from Western financial institutions in this regard. The new sanctions also aim to restrict Russia’s energy revenues by targeting liquefied natural gas (LNG) projects. These projects include Gazprom Invest and other construction firms, equipment suppliers and LNG vessel operators.
These new sanctions imposed by the US on Russia also necessitated the immediate cessation of dollar and euro trading on the Moscow Exchange. The stock market and the central bank quickly announced this decision. This means that banks, companies and investors can no longer trade dollars and euros through a centralized exchange. It also offers advantages in terms of liquidity, clearing, and supervision.
In the face of this situation, Russia is preparing to take new measures to restrict dollar and euro trade. The Central Bank has announced that over-the-counter trading will be held to determine official exchange rates. Russians keep their savings in dollars or euros due to the depreciation of the ruble. However, a major Russian commodity exporter, which was not affected by the sanctions, stated that they preferred the yuan. The Chinese yuan has become the most traded currency in the MOEX as Moscow’s efforts to establish close ties with Beijing. Yuan-ruble trading shows an increase in daily volumes.[3]
The Russian ruble closed at 89.10 against the dollar and 95.62 against the euro ahead of the national holiday. However, after the news of the sanctions, some banks increased their dollar rates. The US Treasury also stated that the sanctions target Russia’s financial system. The Central Bank of Russia, on the other hand, has announced that it is prepared for such sanctions. Sanctions can affect currency trading, reducing the profits of the stock market.
Finally, the United States has restricted the sale of semiconductors to Moscow as part of an effort to weaken Russia’s war machine by expanding sanctions against Russia and targeting China-based companies. The U.S. Treasury has emphasized that if foreign financial institutions support Russia’s war economy, there is an increased risk of secondary sanctions and the threat of losing access to the U.S. financial system.
After this situation, the US Treasury took action to limit the Russian military industrial base’s use of American software and information technology. In addition, the U.S. Treasury and the U.S. Department of State; It has sanctioned more than 300 individuals and entities around the world, including in Asia, Europe, and Africa. The U.S. Department of Commerce, on the other hand, targeted front companies in Hong Kong and prevented them from diverting semiconductors to Russia, and these steps were likely to affect approximately $100 million in high-priority items for Moscow.[4]
It is also reported that the list of products that Russia cannot import from other countries will be expanded. This list will be expanded to include not only U.S.-origin products, but also U.S.-branded products. Ukrainian officials state that Russian equipment contains US-made chips and other technologies. It is thought that the sanctions imposed by the US and other countries after Russia’s seizure of Ukraine will make it difficult for Russia to wage war and weaken its economy.
These sanctions are aimed at the international transportation of materials and equipment. In addition, sanctions will be imposed on significant parts of Russia’s financial infrastructure. The purpose of these sanctions is to make it more difficult for Russia to provide greater transparency in cross-border transactions and evade sanctions. The sanctions would ensure that foreign banks risk being cut off from the U.S. financial system if they do business with major Russian banks. The purpose of the sanctions is to impose a global financial embargo on Russia and to complicate the flow of goods from countries that trade with Russia.
[1] “U.S. Treasury expands sanctions to limit Russia’s war production”, Reuters, https://www.reuters.com/world/us/us-treasury-widens-sanctions-curb-russias-war-production-2024-06-12/, (Access Date: 12.06.2024).
[2] “U.S. Treasury expands sanctions to limit Russia’s war production”, Reuters, https://www.reuters.com/world/us/us-treasury-widens-sanctions-curb-russias-war-production-2024-06-12/, (Access Date: 12.06.2024).
[3] “Affected by the new sanctions of the United States, Russia stopped trading dollars and euros on the main stock exchange, Reuters, https://www.reuters.com/markets/europe/moscow-exchange-stop-trading-dollars-after-latest-us-sanctions-2024-06-12/, (Access Date:12.06.2024).
[4] “US expands Russia sanctions, targets chips sent via China”, Reuters, https://www.reuters.com/world/us-widens-russia-sanctions-targets-semiconductors-sent-via-china-2024-06-12/, (Access Date:12.06.2024).
