Russian economy shudders after U.S. and Europe impose sanctions

The moves came after European and U.S. officials slapped a range of economic restrictions on Russia that attempted to effectively cut Moscow off from much of its financial reserves. Under the new regime, all people in the United States and European Union are banned from trading with Russia’s central bank. The sanctions also apply to Russia’s Finance Ministry and its sovereign wealth fund. The U.S. and its allies were executing a hastily assembled strategy meant to squeeze Russia’s economy and make it very difficult for Russian leaders to tap money as it carried on its invasion of Ukraine for another day.

The restrictions amount to choking off Russia from the international financial system.

Private businesses have joined governments in the isolation of Russia. Facebook, Google and YouTube have announced plans to stop Russian state-media outlets from monetizing off their platforms. Twitter announced Monday it would begin adding labels to tweets containing content from Russian state media websites. Oil giant Shell said Monday it plans to dump its joint ventures with Russian gas giant Gazprom, making it the third major oil company to announce such a step. FedEx and UPS have announced they were halting deliveries to Russia and Ukraine, and the U.S. and foreign governments have moved to block much of the Russian banking system from key international markets.

The E.U. has also announced it will shut down airspace to Russian planes and support Ukraine’s purchase of weapons.

The U.S. and its allies have not blocked Russia from exporting energy, however, as Europe in particular heavily relies on Russian gas.

The U.S. government said it was issuing an exemption allowing “certain energy-related transactions” with the central bank of Russia, as the West has tried to continue the flow of Russian energy exports to sustain the European economy and maintain gas prices.

Treasury also announced sanctions Monday morning on entities tied to Russia’s sovereign wealth fund, including its management company and one of the sovereign wealth fund’s subsidiaries. It also put sanctions on the leader of that management company.

“The unprecedented action we are taking today will significantly limit Russia’s ability to use assets to finance its destabilizing activities, and target the funds [Russian President Vladimir] Putin and his inner circle depend on to enable his invasion of Ukraine,” Treasury Secretary Janet L. Yellen said in a statement. “Today, in coordination with partners and allies, we are following through on key commitments to restrict Russia’s access to these valuable resources.”

Two senior administration officials, speaking on the condition of anonymity to describe the White House’s announcement, said Monday that the freeze was immediately effective and intended to head off signs that Russia aimed to recall its international reserves from around the world.

The punishments reflect the extraordinary outpouring of support for Ukraine in the West, but they also carry the risk of a further escalation in hostilities with Moscow. Putin has responded to Western statements in recent days by putting the country’s nuclear forces on alert. Ukraine and Russian officials on Monday held their first diplomatic talks since the invasion began, and they plan to continue discussions in the coming days.

The banking restrictions are arguably the most serious form of economic retaliation yet approved by Western powers in response to Russia’s attack on Ukraine. They are aimed at preventing Putin from using his sizable financial reserves — totaling more than $600 billion — to stabilize the Russian economy in the face of other sanctions and economic measures imposed by the West.

As of June 30 of last year, 32 percent of Russia’s foreign currency reserves were in euros and 16 percent were in U.S. dollars, according to its central bank. About 7 percent were in British pounds, 13 percent in Chinese renminbi and 22 percent in monetary gold. The remainder was held in other currencies.

“In one fell swoop, the U.S. and Europe have rendered Putin’s war chest unusable. … That the U.S. and Europe have done this in unified fashion sends a crystal-clear message that Russia will face dramatic costs so long as Putin’s war of aggression continues,” said Edward Fishman, former Russia and Europe sanctions lead at the State Department. “This action represents a sea change in U.S. and European strategy. Just 72 hours ago, a step like this was unthinkable.”

The United States had already announced sanctions targeting nearly 80 percent of the Russian banking sector’s total assets. Its…