Are More Aggressive Sanctions Against Russia about to Be Imposed?

David Horn and Marik String write in the establishment publication Foreign Affairs:

The conflict in Ukraine might reach a turning point this summer as EU sanctions against Russia near their expiration date and the “Minsk II” ceasefire in eastern Ukraine comes under increasing strain...

To date, the United States has “blocked” approximately 130 Russian and Ukrainian officials, businessmen, separatists, and companies. Blocking sanctions are the most common among the measures the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) has used in recent years. In these cases, OFAC names individuals or entities as specially designated nationals (SDNs). All SDN assets under U.S. jurisdiction must be frozen, and nearly all commercial and financial dealings with SDNs by U.S. persons are prohibited.

Blocking sanctions have been a preferred measure because they can be deployed quickly and with precision, avoiding significant collateral harm to U.S. businesses, the global economy, and the Russian people. And OFAC has made SDN designations quite regularly: It has added new Russian and Ukrainian SDNs eight times since the outbreak of violence in eastern Ukraine and Crimea....

If the United States were to ratchet up blocking sanctions, it might start demanding that foreign subsidiaries and joint ventures of U.S. companies also stop dealing with blocked individuals and institutions. This type of “extraterritorial” escalation has precedent: In 2012, the United States applied certain Iran-related sanctions to entities “owned or controlled” by U.S. persons, and the Cuba sanctions program continues to impose comparable restrictions. Such a measure would cut off any remaining economic contacts between the offshore-registered affiliates of U.S. companies and the blocked Russian targets....

The United States has also placed “export control” measures—the use of export licensing policy and other regulations to restrict the flow of certain U.S. goods, technology, and services—on exports and re-exports to Russia. Like blocking sanctions, export controls can deprive specific firms, sectors, or national economies of U.S. technology, down to precise tariff classifications...

The most severe and perhaps least likely response in this area could be to require a license for all exports to Russia, effectively placing Russia under a trade embargo comparable to those against Iran and Cuba. Such a measure could be more crippling to the Russian economy than any of the current sanctions, but would almost certainly cause significant collateral harm to regional and global economies and to the Russian people.

The third category of sanctions that the United States has placed on Russia is a new sanctions paradigm, so-called “sectoral” sanctions. Although other sanctions programs have featured sanctions targeting strategic industrial sectors (most notably, the Iranian energy sector), the sectoral sanctions imposed against Russia have taken a more modest form. OFAC has listed 11 Russian energy, defense, and financial firms on its “Sectoral Sanctions Identifications List” (SSIL), which curtails their ability to raise new capital on the medium- to long-term debt and equity markets or to roll over old debt. The sectoral sanctions also prohibit the provision of goods or services in support of any unconventional oil projects carried out by five SSIL designees in the Russian energy sector.

Sectoral sanctions, in other words, may be a misnomer in this case, since these sanctions do not actually apply to entire Russian industrial sectors but rather only to enumerated activities with select firms within each sector...

With EU sanctions and the Minsk II ceasefire increasingly tenuous, the weeks ahead could entail considerable flux in the international sanctions regime against Russia. Although the exact nature of any new Russia sanctions may be difficult to predict, the United States could decide to deploy from a large—and growing—sanctions arsenal.