U.S. widens sanctions to discourage countries from doing business with Moscow

The United States widened its sanctions against Russia Wednesday as G7 leaders prepared to gather in Italy for a summit where the top priorities will be boosting support for Ukraine and grinding down Russia’s war machine.

Wednesday’s package targeted Chinese companies which help Russia pursue its war in Ukraine and raised the stakes for foreign financial institutions which work with sanctioned Russian entities.

The U.S. has sanctioned more than 4,000 Russian businesses and individuals since the war began, in an effort to choke off the flow of money and armaments to Moscow, whose superior firepower has given it an advantage on the battlefield in recent months. Nonetheless, new companies continually pop up as Russia attempts to rework supply chains.

“We have to be very honest with ourselves that Putin is a very capable adversary who is willing to adapt and find those willing collaborators,” Aaron Forsberg, the State Department’s Director for Economic Sanctions Policy and Implementation, told The Associated Press.

Sanctions against Russia, he said, are therefore a “dynamic affair.”

While sanctions have not stopped the flow of illicit goods, the aim is to make it harder for Russia to source crucial technology as well as driving up the mark-up on the goods. Wednesday’s package targets more than $100 million in trade between Russia and suppliers for its war.

More than 300 new sanctions are largely aimed at deterring individuals and companies in countries including China, the United Arab Emirates and Turkey from helping Moscow circumvent Western blocks on obtaining key technology. They also threaten foreign financial institutions with sanctions if they do business with almost any sanctioned Russian entity, underscoring the U.S. view that the Kremlin has pivoted the Russian economy on to a war footing.

Russia’s military is “desperate for access to the outside world,” said Treasury Secretary Janet Yellen.

The announcement came shortly before President Joe Biden arrived in Italy where he and other G7 leaders are urgently looking at aiding Ukraine, including turning frozen Russian assets into billions of dollars of support for Kyiv.

Seven Chinese and Hong-Kong based companies were targeted Wednesday for shipping millions of dollars of material to Russia, including items which could be used in Russian weapons systems.

U.S officials say China is the leading supplier of critical components to Russia, supplying both Chinese and Western technology.

On Wednesday the U.S sanctioned a Chinese state-owned defense company which officials said had shipped military equipment for use in the Russian defense sector.

The move sends the message that the U.S. is “willing to wade into more treacherous territory” by increasing the pressure on the Chinese government, said Benjamin Hilgenstock, senior economist at the Kyiv School of Economics.

“We will address (China’s) support for the Russian defense industrial base. And we will confront China’s non-market policies that are leading to harmful global spillovers,” White House national security spokesman John Kirby told reporters Tuesday.

China did not sanction Russia after President Vladimir Putin invaded Ukraine, and Putin ended a visit to China in May by emphasizing the two countries’ burgeoning strategic ties.

“The Chinese leadership is not interested in making these sanctions a success,” said Janis Kluge, a Russia sanctions specialist at the German Institute for International and Security Affairs in Berlin (SWP.)

Beijing, Kluge said, is reluctant to stop a valuable trade is worth large amounts of money and it does not want to “add to the pressure on Putin in this war.”

Imports from China are vital to Russia because China is a major producer of critical components, including for Western companies. Chinese companies also act as intermediaries for the sale and shipment of Western components to Russia.

But while Chinese technology has been found on the battlefield in Ukraine, most of the components still come from Western nations including those which are “overwhelmingly” found in high-tech drones and ballistic missiles, said Hilgenstock.

As well as China, the U.S. targeted businesses in Turkey and the United Arab Emirates which officials said sent high-priority items to companies in Russia, including to businesses which were already sanctioned.

In December, the White House said foreign financial institutions could be sanctioned if they worked with entities in Russia’s defense sector. Wednesday’s expansion of sanctions now means that those institutions could face sanctions if they work with almost any sanctioned Russian entity.

The fear of triggering secondary sanctions is an effective threat, analysts said.

While President Xi Jinping may not want to facilitate Western sanctions on Russia, “Chinese banks have always been very careful not to become a target of secondary sanctions because it would be very costly,” Kluge said, pointing to cases where Chinese banks have ended relationships with Russian customers.

Wednesday’s package targeted Russia’s financial infrastructure, including the Moscow Stock Exchange, in an attempt to limit the amount of money flowing in and out of Russia.

It also aims to hobble the development of Russia’s energy sector and future sources of cash, including Arctic liquified natural gas projects which have been shipped critical LNG technology by a Chinese company.

In addition, the package targeted people involved in the forced transfer and deportation of Ukrainian children to Russia. Five people in Russia and Russian-occupied Ukraine were sanctioned after participating in the forced militarization and reeducation of the children and of providing them with Russian passports.