Will Trump's recently announced Russia sanctions deter Putin's actions?
Russia's economy has shown unexpected resilience in 2023 and 2024, with GDP rising by 4.1% and 4.3% respectively. However, the economic landscape may be shifting as the United States is reportedly considering imposing secondary sanctions on countries doing business with Russia, particularly China and India.
The ruble, Russia's currency, has gained roughly 40% against the US dollar since the start of the year. This strength may be short-lived, as the potential impacts of US secondary sanctions could significantly disrupt the economy.
The new sanctions legislation in the US Senate targets countries, companies, or individuals that continue doing business with Russia. The legislation seems to be aimed primarily at China and India, as they are significant trading partners of Russia.
The potential impacts of these sanctions include significant economic and trade disruptions primarily through tariffs and trade restrictions. For instance, the US has already imposed an unprecedented 25% secondary tariff on Indian imports in response to India’s purchase of Russian-origin oil. This tariff adds economic pressure on India by increasing the cost of its exports to the US.
Trade disruption and uncertainty are also looming. Countries like China, the largest buyer of Russian oil, face pressure but are likely to continue their imports due to discounted prices and established infrastructure. The tariffs and sanctions increase trade complexity and may cause shifts in global shipping and energy supply chains.
Economic pressure on Russia through curtailed 'shadow fleet' shipping is another potential impact. Sanctions on transport vessels carrying Russian oil can cause a collapse in Russian oil exports. Secondary sanctions targeting these ships can sharply reduce Russia's revenues and depreciate the Ruble, affecting Russia’s war-financing capacity.
Geopolitical consequences are also a concern. The US is using secondary sanctions as leverage to pressure Russia into ending the war in Ukraine by threatening the economic interests of its trade partners. However, this risks pushing countries like India and China closer to Russia or causing diplomatic friction with the US, complicating global politics.
Business and financial risk for companies are also a factor. Indian refiners, for example, face operational challenges such as restrictions on foreign currency transactions from banks wary of US sanctions risks, impacting trade viability.
In summary, US secondary sanctions aim to penalize third countries (notably China and India) for continuing to trade with Russia by raising costs and complicating transactions, thereby exerting economic and diplomatic pressure. These measures risk disrupting global trade, prompting strategic realignments, and could either coerce compliance or backfire by hardening resistance among affected countries.
The new sanctions bill in the US Senate appears to have made substantial progress and could be ready for consideration on the Senate floor as early as this work period. US President Donald Trump has announced he would be sending "billions of dollars" in weapons to Ukraine, including Patriot air defense missiles, further escalating tensions.
[1] The Washington Post [2] Reuters [3] Bloomberg [4] The Diplomat [5] The Guardian
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