EU Sanctions to Severely Weaken Russian Economy, Says NBU Governor

On Saturday, July 19, the EU unveiled the 18th package of sanctions against Russia. The Governor of the National Bank of Ukraine (NBU) Andriy Pyshnyy outlined a number of consequences of these restrictions for the Russian economy, The Gaze reports.

The NBU's sanctions team identified a number of key changes.

First, a complete ban on transactions with 22 Russian banks has been introduced. This innovation replaces the previous restriction on access to the SWIFT system. 

Second, the ban on transactions can now be applied not only to financial institutions and service providers with crypto assets, but also to anyone who facilitates the circumvention of restrictions related to Russian oil. As a result, two regional Chinese banks were sanctioned.

Third, restrictions on transactions with institutions that use or are connected to the System for Transfer of Financial Messages (SPFS), the Russian equivalent of the SWIFT system, have been tightened.

Fourth, the supply of specialized software for the banking and financial sectors to Russia is prohibited.

Fifth, the EU has introduced a new ban on transactions with the Russian Direct Investment Fund, its sub-funds, companies and entities providing it with investment or financial services.

One of the key consequences of this sanctions package is a significant increase in the isolation of the Russian banking system."While Russian banks disconnected from the SWIFT system have been de facto able to use alternative methods to exchange financial messages, the updated sanctions essentially make international transactions impossible for certain Russian banks," says Andriy Pyshnyy.

It is reported that the restriction on the use of the SPFS may complicate the mechanisms for circumventing sanctions.

The development of the IT infrastructure of the Russian financial sector is also expected to slow down, as restrictions on access to Western software reduce the level of cyber defense and force a shift to import substitution.

The last important implication is the weakening of Russia's investment opportunities. “The ban on transactions with the Russian Federation is also a broad signal to private and public investors around the world to avoid any interaction with funds linked to Russia,” Pyshnyy said.

The Gaze previously reported on the European Union’s adoption of its 18th package of sanctions against Russia, with EU High Representative for Foreign Affairs and Security Policy Kaja Kallas calling it “one of the most powerful ever imposed on the Russian Federation.”