The sweeping new sanctions — announced by the Treasury Department on Wednesday — singled out the Moscow Exchange, Russia’s main financial marketplace, for helping Russians “profit from the Kremlin’s war machine,” and broadened the risk of secondary sanctions for any foreign financial institution doing business with Russia’s war economy.
The Moscow Exchange operates trading markets in stocks, bonds, derivatives, currencies and precious metals.
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The new sanctions also targeted companies based in China selling semiconductor chips to Russia, as well as more than 300 individuals and entities in Russia, Europe, Asia and Africa.
Russia has managed to ramp up spending on military production since it invaded Ukraine in 2022, despite facing the biggest barrage of sanctions and export controls ever unleashed by the United States and its allies against a country’s economy.
Rather than buckle, Russia has turned to China and India and myriad murky intermediaries to sidestep the restrictions, with the West unable to wean itself fully from Russian commodities.
The effort to toughen the penalties against Russia reflect a growing recognition among policymakers that measures so far, including unprecedented export controls, have proved insufficient at stopping the Kremlin from obtaining Western parts for its military supply chain, said Edward Fishman, who served as a senior State Department official in the Obama administration.
Ukrainian officials have documented thousands of foreign-made parts in Russian military supplies recovered on the battlefield, despite the Western restrictions.
To cut down on the trade, the Treasury this week broadened “secondary sanctions,” which seek to make foreign banks unwilling to process Russian bank payments.
Secondary sanctions, which target entities doing business with Russian companies or individuals under sanction, are now applicable not just to entities working with Russia’s defense industry but also to those working with any sanctioned Russian business or individual, including the country’s biggest banks.
U.S. officials wanted to put the sanctions in place ahead of a gathering of world leaders at a Group of Seven summit in Italy. “There’s tremendous frustration the export controls are not working as well as one would hope,” Fishman said. “They’re basically saying, if we financially isolate Russia, it could make it much harder for it to pay for its military imports.”
In response to the new measures, Medvedev, who has become one of the most vociferous Russian officials in condemning the West, called on Russians to “look for vulnerabilities” in Western economies and to “hit them in all areas.”
“We must find problems in their most important technologies and strike them mercilessly,” he said. “Literally destroy their energy, industry, transport, banking and social services.”
Stocks on the Moscow Exchange initially plummeted on Thursday, though they recovered later. Economists and former senior officials warned that the new measures barring trading in dollars and euros on the central exchange would significantly impact the cost of doing business for Russia’s export- and import-based economy, possibly further stoking inflation, which is already high — officially at 8 percent.
As a result, Russian businesses now must convert dollars and euros on Moscow’s interbank market instead of on the centralized exchange, allowing the banks to charge high commissions for each trade and increasing the spreads at which dollars and euros are bought and sold, reducing transparency.
Although Russians have increasingly switched to the Chinese yuan since the February 2022 invasion — 54 percent of all currency trading on the Moscow Exchange is now Chinese — dollars and euros are still important for Russia’s economy.
“Russia is still dependent on using Western currencies for trade with all countries except for China,” said Janis Kluge, an economist at the German Institute for International and Security Affairs. “There is huge demand for trading these currencies.”
The new sanctions, Kluge said, “will increase costs for importers and exporters” and add new “layers of complexity” to Russian business transactions. “The impact is initially psychological,” he said, and further increases Russia’s isolation.
Kremlin spokesman Dmitry Peskov called for calm and told Russians to look to the Central Bank as a “mega-regulator capable of ensuring stability” after Russian banks began sharply increasing the exchange rate for dollars following the ban on trade on the Moscow Exchange.
Some raised rates as high as 200 rubles to the dollar, the Russian newspaper Kommersant reported. The day before, the rate set on the Moscow Exchange was just under 90 rubles to the dollar.
The Central Bank said it would set daily dollar and euro exchange rates based on aggregated data from commercial bank purchases and sales. It fixed Thursday’s official rate at 88.2 rubles to the dollar.
A former senior Russian financial official said that the Russian economy would not run out of dollars or euros, but that the new sanctions would clearly add to the rising costs of Putin’s war for the economy.
“This is not a question of financial stability, but it is a question of financial costs,” the former senior official said. “The costs for imports will grow and this will be an additional factor leading to price growth.”
The huge increase in government spending on Russia’s defense industry, which is further driving inflation, will eventually become untenable, the former senior official said. Signs are growing that the Kremlin was aware of this, which is why tax increases for next year have already been adopted into law.
“If oil prices don’t grow any more, then sooner or later the budget will reach a ceiling, and it will not be possible to continue spending without printing money,” the former official said. “But there is another instrument, and that is taxation, and it is not a coincidence that a law has been passed that increases taxes on companies.”
Putin announced the increases for 2025, including a hike in the tax on corporate profits from 20 percent to 25 percent, as well as increases in income taxes. He referred to them as a “fine-tuning” of the system.
“Putin has plenty of ways to continue funding the war machine this year and next, but after that, it becomes more difficult,” said Alexandra Prokopenko, a former adviser at Russia’s Central Bank who is based in Berlin.
