As the war in Ukraine drags on, lawmakers in the U.S. are seeking ways to ratchet up the economic pressure on Russian President Vladimir Putin. The hundreds of sanctions imposed so far on Russian industries, companies and individuals by the U.S., U.K. and European Union apply only to the extent that sanctioned banks, companies and people fall under the legal jurisdiction of those areas — by holding money in American bank accounts, for instance. With the Ukrainian government pleading for more action, some in Washington are discussing so-called secondary sanctions. The idea appeals to those who want to close loopholes Russia can use to continue doing business with the world. But it’s controversial because of what it could mean for U.S. allies who rely on Russian energy and other resources.
Secondary sanctions target commercial activity involving a party under primary sanctions but occurring outside U.S. legal jurisdiction. The imposition of secondary sanctions is meant to force companies, banks and individuals to make a tough choice: continue doing business with the sanctioned entity or with the U.S., but not both. Because of the primacy of the U.S. dollar as a store of value, most companies prioritize keeping good relations with the U.S.
The measures taken against Russia by the U.S., the U.K. and the EU have had considerable impact, causing Russian inflation to spike, closing its stock market and causing the collapse of some of its banks. But a carve-out in the sanctions regime that allows Russia to continue selling oil and gas into the European market has tempered some of the effect, helping the ruble recover much of the value it lost in the weeks following the start of the invasion. Ukrainian President Volodymyr Zelenskiy and members of his government have encouraged the U.S. and its allies to impose additional sanctions, and members of Congress have pressed the administration to consider secondary sanctions.
Enforcing secondary sanctions
Unlike primary sanctions, which can be enforced by fines and the seizure of U.S.-held assets, secondary sanctions rely on the centrality of the U.S. financial system to the world economy and the widespread use of the U.S. dollar as the global reserve currency to work. A company or individual that violates a secondary sanction could be hit by U.S. export controls or be placed on the Treasury Department’s Specially Designated Nationals and Blocked Persons List, which would prevent Americans from doing business with it.
Two-thirds of all U.S. secondary sanctions apply to entities linked to Iran; much of the rest apply to entities linked to North Korea. Secondary sanctions were part of the U.S.-led pressure campaign to keep Iran from developing a nuclear weapon. The sanctions have made it difficult for Iran to sell its oil into the global market. China and Russia have also been subject to secondary sanctions over the years.
The use of secondary sanctions has been called an extraterritorial application of U.S. law. Opponents of the practice say they’re a U.S. tool to influence the policies and decision-making processes of other countries who would not otherwise be in violation of U.S. sanctions. There’s a risk that imposition of secondary sanctions by the U.S. would fracture the united transatlantic front against Russia. Justine Walker, the head of sanctions compliance and risk at ACAMS, a global membership group focused on preventing financial crimes, said that while secondary sanctions would be “very, very impactful,” they would be a “reluctant last resort” for that reason.
Why India and China should be given secondary sanctions?
Secondary sanctions also can create confusion about what activities are banned, leading to over-compliance, which could cause an overall slowdown in global business and the loss of political support for the penalties imposed on Russia.
In 2021, India bought about 12 million barrels of oil from Russia, only 2% of its total imports.
Union Minister of State (MoS) for Commerce and Industry Anupriya Patel on Wednesday informed that India’s imports from Russia rose to USD 8.69 billion in the first 11 months of 2021-22, which is 58 per cent higher than the total imports of USD 5.48 billion recorded in the full financial year 2020-21.
“Russia was the largest supplier of major arms to India in both 2012-16 and 2017-21, but India’s imports of Russian arms dropped by 47% between the two periods as several large programmes for Russian arms wound down,” the SPIRI study said.
Russia has started delivering the S-400 Triumf surface-to-air missile systems to India and the deliveries are going as planned, said the Director of the Federal Service for Military-Technical Cooperation (FSMTC) Dmitry Shugaev. It is mentioned that India and Russia had signed the deal for five S-400 regiments worth USD 5.43 billion in October 2018.
From 2016 to 2020, China bought $5.1 billion worth of Russian arms, purchases that accounted for 77% of Beijing’s total arms imports during the period, according to the Stockholm International Peace Research Institute (SIPRI).
In 2020, Russia exported 17.2 bcm of LNG to Europe, and China imported 94 bcm (including 6.9 bcm from Russia), of which almost 40 bcm were spot purchases (as opposed to sales under term contracts). These numbers suggest China has the capacity to absorb more Russian LNG.
Noting that reporting energy payments by India is not sanctioned, the White House said New Delhi’s imports of Russian energy represent only one to two per cent of its total energy imports. The White House also reiterated that it is not in India’s interest to increase its import of energy from Russia and that the Biden administration is willing to work with New Delhi to help it do that.
The White House has reiterated that it is not in India’s interest to “accelerate or increase” imports of Russian energy and other commodities while offering to work with New Delhi to help it reduce its reliance on imports from Moscow.
Responding to questions on the visit of top Indian-American US advisor Daleep Singh to New Delhi last week, White House Press Secretary Jen Psaki told reporters at her daily news conference on Monday that he explained both the mechanisms of the American sanctions and reiterated that any country or entity should be abiding by those.
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