The U.S. announced on Wednesday it was expanding its sanctions on Russia as G-7 leaders gathered in Italy for a summit where the top priorities will be boosting support for Ukraine and undercutting the Russian military machine.
Separately, officials said on Thursday that the world's seven wealthiest democracies agreed to lend Ukraine up to $50 billion using frozen Russian assets as collateral.
The new package targeted Chinese companies, including those selling semiconductors to Moscow, that help Russia pursue its war in Ukraine and raised the stakes for foreign financial institutions that work with sanctioned Russian entities.
It also targeted Russia's financial infrastructure in an attempt to limit the amount of money flowing in and out of Russia. Shortly after the sanctions were made public, the Moscow Exchange announced it would suspend transactions in dollars and euros.
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 U.S. State Department's Director for Economic Sanctions Policy and Implementation, told the Associated Press (AP).
Sanctions against Russia, he said, are therefore a "dynamic affair."
That includes listing addresses for the first time in a bid to crack down on companies reopening at the same address under a different name.
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 drive up the markup 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 (UAE) and Türkiye 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 to a war footing.
Russia's military is "desperate for access to the outside world," said Treasury Secretary Janet Yellen.
Agreement on frozen assets
The announcement came shortly before U.S. President Joe Biden arrived in Italy, where he and other G-7 leaders are urgently looking to aid Ukraine, including turning frozen Russian assets into billions of dollars of support for Kyiv.
Diplomats confirmed the agreement, struck before Thursday's start of the three-day summit, to engineer a loan to help Ukraine that would use interest earned on profits from Russia's frozen central bank assets as collateral.
Ukrainian President Volodymyr Zelenskyy will be on hand and is expected to sign a separate bilateral security agreement with Biden during the summit.
The G-7 includes Canada, France, Germany, Italy, Japan, the United Kingdom and the U.S. Host Italy has invited several African leaders – Algerian President Abdelmadjid Tebboune, Kenyan President William Ruto and Tunisian President Kais Saied – to press Italy's Africa initiatives.
Other guests include President Recep Tayyip Erdoğan, Brazilian President Luiz Inacio Lula da Silva and Indian Prime Minister Narendra Modi, fresh off his own election.
European officials have resisted confiscating the assets, citing legal and financial stability concerns. However, the plan seeks to use the interest earned on the assets to help Ukraine's war effort.
The U.S. proposal involves using profits from the roughly $260 billion in frozen Russian central bank assets, most of them held in the European Union, to help Ukraine, and issuing a $50 billion loan from the U.S. government to Kyiv, using windfall profits from the immobilized funds as collateral.
The U.S. Commerce Department said it was targeting shell companies in Hong Kong for diverting semiconductors to Russia, taking steps that would affect nearly $100 million of high-priority items for Moscow, including such chips.
It will also expand its lists of items Russia cannot import from other nations to cover not just U.S.-origin products but U.S.-branded goods, meaning those made with U.S. intellectual property or technology, a senior Commerce official told reporters on condition of anonymity.
U.S.-made chips and other technology have been found in a wide array of Russian equipment, from drones to radios, missiles and armored vehicles, recovered from the battlefield, Ukrainian officials say.
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 spokesperson 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.)
Kluge said Beijing is reluctant to stop a valuable trade worth large amounts of money and does not want to "add to the pressure on Putin in this war."
Fears of secondary sanctions
Imports from China are vital to Russia because Beijing 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 that are "overwhelmingly" found in high-tech drones and ballistic missiles, said Hilgenstock.
Along with China, the U.S. targeted businesses in Türkiye and the UAE, which officials claimed sent high-priority items to companies in Russia, including to businesses that 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 such measures if they work with almost any sanctioned Russian entity.
Biden's top foreign policy adviser, Jake Sullivan, told reporters on the way to the G-7 that the message to China and other countries was that they are "at serious risk of running afoul of the Treasury Department and falling under a sanctions regime."
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.
The package also aims to hobble the development of Russia's energy sector and future sources of cash, including Arctic liquefied natural gas (LNG) projects, which have been shipped critical LNG technology from 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 providing them with Russian passports.