Gillian Edgeworth, Macro Strategist
Putin has signaled that he wishes to replace the current Ukrainian government with a pro-Russian administration. This implies ongoing military conflict until the Ukrainian government steps down and much of Eastern Ukraine is secured. Even if Russia succeeds in this, we would expect persistent pockets of resistance.
What does the escalation of sanctions look like from here? Below is a rough guide. My conviction in the first set of steps is high. Beyond that, the potential costs to the West increase, but I believe these countries’ willingness to absorb these costs is much higher than in the past.
1. Immediate Next Steps:
At the time of writing, the UK and the US have already announced additional sanctions, with the EU and others to follow shortly. The US sanctions involve the following:
- Four major banks added to the Specially Designated Nationals (SDN) list prohibiting all transactions;
- Thirteen entities with new sanctions imposed on primary and secondary trading of new issues;
- A ban on technological exports to Russia by the US, the EU, and some countries in Asia; and
- Sanctions on more Putin allies and family members.
Our legal team is working through the details of these items as we speak.
2. If Russia Takes Kyiv and Other Cities East of the Dnieper River:
- State-owned enterprises (SOEs) in the real economy outside the energy sector added to sectoral/specially designated nationals (SDN) sanctions list; and
- Initial sanctions on energy and oil exports problematic but possible.
3. If Ukrainian Resistance Continues as a Russia-Friendly Government Is Installed:
- Further sanctions limiting energy and oil exports; and
- The addition of Russian Ministry of Finance/Central Bank of Russia to sanctions list. (Though possible, this would be among the last measures likely to be taken, as it would further increase the probability that Russia doesn’t service its US$462 billion of external debt outstanding.)