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December 15, 2022 Briefing from the U.S. Office of Sanctions Coordination

Special Online Briefing with Ambassador James O’Brien, Head of the Office of Sanctions Coordination

SPECIAL BRIEFING

DECEMBER 15, 2022

MODERATOR: Ambassador O’Brien, thank you so much for joining us today. I’ll turn it over to you for opening remarks. Ambassador O’Brien, over to you.

AMBASSADOR O’BRIEN: Thanks, John. Sorry, small technical problem with the unmute button. I appreciate it, and thanks to everyone for your time. I want to address three broad themes at the top, and these will address some of the submitted questions but then we’ll try to leave time for four or five questions. 

The first thing is, as many of you have seen, the U.S. has announced additional sanctions this morning. They address one of the most influential oligarchs, Vladimir Potanin, also directors of Russian Railways, a number of Russian governors who are directly implicated in the kind of forced mobilization of the last few months, and a number of proxy authorities in the failing attempt to annex parts of Ukraine. These are a direct response to Russia’s escalation of the war with its deliberate targeting of civilian infrastructure. I think that’s a response to its failure to win militarily, but you will see further action by the U.S. I’m also personally very optimistic that the EU will reach agreement on its ninth package of sanctions, and there are some key elements in that that we look forward very much to implementing along with our European partners. 

Now, two other things I want to touch on. Do we think sanctions are working? And the answer here is yes. The key thing is to frame properly how sanctions work, and I want to make three points on this. The first is we see that sanctions hurt Russia on the battlefield. Russia is fighting a static and slow-moving war. It lacks modern communications, optics, precision material, and drones needed to fight in a quick way, and in large part this is because Russia has left itself vulnerable to export controls and sanctions. So it’s forced to use old equipment, old missiles, misuse naval missiles for warfare, and in other ways fight in ways that are not how a modern military would carry out a conflict like this. 

The second point is that because of sanctions, Russia has much less money to make up for its failings. We’ve already seen that Russia entered this war with a substantial surplus in its bank accounts. The state had $640 billion in a surplus; 300 billion of that has been frozen and is inaccessible, and we see Russia burning through the remaining amount. We think it’s spent well above 80 billion in just the first months of this war. And I’d add to this, now you see cuts in their budget. You see they have lost their most valuable resource – maybe as many as 900,000 Russians have fled the country in response to the mobilization, the sanctions, and the war. And in general they’re much less able to produce at home what they need in order to fight the war most effectively. They also cannot import what they most need, so even if they are making some money from sales of commodities such as oil or gas or food and fertilizer, they’re unable to buy many of the items they need to fight a modern war. So as of September, their semiconductor imports were down 70 percent. 

The result of all this means that over the next years, Russia’s economy will just shrink and fall further and further behind. We estimate that by the next few years, Russia’s economy will be at least 16 percent smaller than it would have been without the war, and by 2030 it’ll be 20 percent smaller than it would have been. And that’s less money for research and development, for procurement, for recruitment, for all of the things that are needed in order to have a modern economy and to be able to carry out Putin’s imperial project. 

And then the next thing I want to address in the impact is that this – that Russia does try to evade the sanctions. It seeks to use proxy companies in other countries. It seeks to buy equipment that is technically allowed, and then repurpose it for military purposes. Our message is very clear: to any private company, if you provide material support to Russia in evading the sanctions, you are vulnerable to sanctions yourself. We’ve been carrying that message to the private sectors not only in the partners, the three dozen or so countries who are openly part of our coalition, but to the private sectors in China, Turkey, India, and elsewhere. And we see that those companies there, many of the large, legitimate companies, they understand and they respect the reach of the sanctions. This makes it – makes Russia depend upon either new or unreliable vendors. It’s very hard to run a modern economy in that way. 

I’m happy to take more questions on this, but the friction and the uncertainty that have been introduced into Russia’s economy by their efforts to evade sanctions are attacks on everything they do. So they have fewer resources and it’s more expensive and more difficult for them to do the things they try to do. 

The final point I want to make is about the global consequences of this war. We are attempting to allow Russia to continue as a supplier of commodities that are important around the globe. So we have an oil price cap now in place. This allows Russian oil to be sold to the Global South. Europe and the U.S. will no longer import Russian oil, but other countries can. We also do not sanction exports of Russian food and fertilizer, and this is a crucial point. 

Russia’s exports of food are tracking with pre-war levels, and we are working to remove any impediment – whether it’s caused by Russia’s own export ban, which took up several months this year, or with restrictions on Ukrainian grain, also one of the top five suppliers of grain to the Global South. So we are working to be sure that food and fertilizer are able to reach global markets, and that’s true with the UN-backed Black Sea Initiative. As recently as October it was exporting approximately 5 million tons of Ukrainian grain to global markets. It’s been restricted a little bit recently; we’d like to see it get back up to that level. Also the direct exports to the European Union through the solidarity lanes have allowed Ukraine to export another 2 and a half or perhaps now 3 or 4 million tons of grain onto global markets. 

All of that is critical for breaking down prices. Prices spiked when Russia invaded Ukraine and Russia stopped exporting. Now prices are down to pre-war or below levels for most of these key products, and that’s a result of the extraordinary efforts and above all the extraordinary courage of the Ukrainians in continuing to farm and export and keep ports open. 

And that’s what I’ll close with. Two weeks ago I was able to visit Odesa. And what I saw is a city coming back to life, because it was able to begin exporting, as I said, millions of tons of grain. Russia targeted Odesa for missile strikes this weekend. That has a direct effect on the ability of the port to feed people in the Global South. I was there to celebrate the arrival of World Food Program ships to begin exporting directly to the neediest countries of the world, and yet a week later Russia targeted that area for missile strikes. And I think it’s that kind of behavior that are the reasons it’s important that Russia leave this war facing a strategic defeat, and that the imperial project that we’re seeing in operation has to fail. 

So with that, John, maybe I’ll turn it back over and we can spend the rest of the time addressing questions from the reporters. 

MODERATOR: Thanks very much for that, Ambassador. We do have a couple hands raised, so we’ll go back and forth between submitted questions and live questions. Let’s start with Yaroslav Dovgopol from Ukrinform. Yaroslav, you have the mic. Yaroslav, do you – well, let’s – there we go. Yaroslav, go ahead. 

QUESTION: Can you hear me? 

MODERATOR: Yes, we have you now. 

QUESTION: Thank you for having my question. Hi. Thank you for having my question. The last announcement of the Treasury and the State Department is really substantial step. I mean sanctions. But in general context, the Ukrainian Government insists that all Russian banks be cut from the SWIFT system. And now, as I understand, we have around 10 Russian banks on this list, and those of financial entities on the U.S. sanctions. Could you please explain the difference between SWIFT cutting and other U.S. sanctions against Russian banks in context of blocking their financial activity? And does the U.S. Treasury consider the option of the SWIFT sanctions against all Russian banks? Thank you. 

AMBASSADOR O’BRIEN: Sure. John, do you want me to answer that, or do you want to collect a couple questions? 

MODERATOR: If we can go one by one, Ambassador, that’s what we’ve found works the best. 

AMBASSADOR O’BRIEN: Okay, that sounds great. Good question. Thank you, Yaroslav. So there are several types of sanctions we have on financial institutions. Many Russian financial institutions, those closest to the state, have long been under restrictions on their ability to raise capital on international markets. We also have what we call blocking sanctions, those that make it – that make a financial institution unable to trade in dollars, or when our European colleagues join, in euro. Those are the types of sanctions we announced today. 

The SWIFT system is really, frankly, largely controlled by the Europeans. It’s a particular way of making payments. So when a bank is just de-SWIFTed but still allowed to function, essentially it has to receive payments in the old-fashioned way, in the way that it would have 25 or 30 years ago. So time to dust off the fax machines and put them to work. 

What that does is make it impossible for the bank to be a systematically significant global player, because the efficiency of the transactions are important. And it’s an important statement that Russia is allowed to play a role on global markets, but will not be a fundamental pillar of the rule-based system, because the SWIFT system is a way for there to be quick communication among banks that have signed up to a set of rules. And we don’t see Russia behaving by those rules, and Russian institutions that are benefitting from the Russian system should not be able to benefit from those rules. So that’s the purpose of the de-SWIFTing that’s discussed. 

Now, there are a couple of implications of this, and one, when we designate a bank, as we did today with those owned by Mr. Potanin, what we are saying is those banks no longer can buy and receive dollars, and so any person working with them can work with them only within the limits of some specific license that we provide. Now, that does disrupt certain transactions, and so we regularly provide broad guidance about what transactions are allowed. Again, for us, food and fertilizer transactions are allowed to go forward. So we’re not disrupting the commodities that people need to live, but we are saying that these banks no longer get to be a part of the global, rule-based system that is under assault by Putin’s further invasion of Ukraine. 

Now, do we need to go to every bank, or we go step by step? We are trying to be very conscious that banks do multiple things in many places, and so we take a careful look at each set of banks and try to avoid or mitigate the harm that will come if the bank can’t carry out its transactions. So we view this as moving a step at a time rather than one sort of fell effort to blockade the whole Russian financial system all at once. Because we think that is vital to allowing the global markets to function, to allow Russia to provide the food and fertilizer and energy that it provides, especially to the Global South, but also to deny resources to Russia to fight this war. 

So with that, back over to you, John. 

MODERATOR: Thank you, sir. I’ll go quickly to a submitted question from John O’Donnell from Reuters: “What sanctions has the U.S. imposed on Russia where the European Union has lagged behind? What are the chief gaps in Europe’s sanctions framework on Russia?”

AMBASSADOR O’BRIEN: Yeah, I actually – I’m very pleased by the cooperation between the U.S. and Europe, and some of this I’ll say predated my arrival. The first month after the invasion, I was awaiting confirmation by our Senate, and so the work – the credit goes to others. But I think there’s very strong agreement that we want to do is deny resources to Russia to fight its war, to reduce our dependence on Russia. That increases our leverage. And so we’ve seen both the U.S. and Europe reduce reliance on Russia for energy – in some cases, from very high levels of reliance to very low – and we want to keep the global markets functioning. 

Within that, we are working hard to target specific businesses that procure military equipment for Russia. And the U.S. and Europe, we work together very closely. We may pick different targets in each of our packages, but that gives us a breadth of coverage that’s quite good. And in that regard, I’m very interested in the ninth package. We’ll see when it comes out, but I think it will enable us to target some of the civilian technology and the older technology that Russia has been relying on. 

So I actually am very pleased by our level of cooperation and the commitment that our European partners, along with Canada, Japan, Australia, New Zealand and other members – there’s 37, 38 countries that are contributing restrictions on Russian trade in one form or another. I think it’s been very strong, and I’m really pleased. So no major gaps that I can identify. 

MODERATOR: Thank you, Ambassador. We’ll go again to a live question from Boris Kamchev from the Macedonian Information Service. Boris, you have the mic. 

Boris, are you there? 

Let’s go to another question then from Steve Stecklow. Steve, you have the mic. 

QUESTION: Yeah, hi. I just want to make sure you can hear me (inaudible). 

MODERATOR: We can hear you. Yeah. 

QUESTION: Great. Yeah, we published – Reuters – on Tuesday a lengthy investigation of the supply chain that’s continuing to provide semiconductors and other computer parts to Russia, literally like several billion dollars’ worth since the invasion. I wanted to ask the ambassador about this figure he gave earlier about 70 percent drop in semiconductor imports. What does – can you be a little more specific on that? Because our review of Russian customs records showed in fact that from a year ago since the invasion, semiconductor imports by Russia has actually increased. So that figure, as of September – could you tell us like from what – how much to how much? Or is it September a year ago till September now? Like – I’d like some specifics on that figure. Thank you. 

AMBASSADOR O’BRIEN: Yeah, I think the rating is over the course of the year. So it was January to September ’21, to January-September ’22. I haven’t read your reporting, so I’m not sure which tariff categories you’re looking at. We were looking at the items that were relevant militarily. But let me dig back into the statistics and come back to you rather than debating it here. 

I do think the other thing, though, is to look at the quality and the purpose of the semiconductors. We see a marked change in the quality of what’s being imported or its purpose. There are things that are slightly older tech that can be adapted for military use, or things taken out of civilian appliances and other consumer goods that then get adapted, and we’ve all seen the reporting, some of which Reuters has done, on how consumer goods are showing up in destroyed Russian equipment on the battlefield. And I – so I wouldn’t – let’s – let me try to get you an answer on the pure amounts, but the – I think the quality also makes a difference. 

Again, I think with the ninth package and with some coordination, we’ll also be able to look at some of these networks, because many of the purchases are allowed by the sanctions up till now. But now we’ll be in a position to take a new look at the businesses that are attempting to help Russia in the way that you reported. 

MODERATOR: Thank you, Ambassador. We’ll go to another submitted question from Jonathan Tirome from Bloomberg. The question is: “Inland waterways connect the Sea of Azov to the Don and to Volga rivers, and to the Caspian, where trading activity has observably increased with Iran over the last eight months. What, if anything, can the U.S. do to interdict trade on the southern trade route running through territorial corridors? How concerned is the U.S. with traffic along this route?” 

AMBASSADOR O’BRIEN:   Yeah, we’re concerned with any sort of effort to help Russia evade the sanctions. So we have imposed additional sanctions on Iranian entities that have provided military equipment to Russia, also on some front companies, and on Russian entities involved in not necessarily that route but with the Iranian support to Russia. I think our message is very clear: any involvement in this kind of sanctions evasion is going to produce long-lasting and very, very harsh sanctions on the entities involved and on the governments that support them. So it is an area where we’re watching carefully, both that route but just generally the Iranian-Russian connection as we go forward. 

MODERATOR: Thank you, sir. We’ll go to another live question now from Oskar Gorzynski from the Polish Press Agency. Oskar, you have the mic. 

Oskar, are you there? 

QUESTION: Oh, okay. I was muted. Sorry. 

MODERATOR: No problem. 

QUESTION: Yeah. So thank you for taking my question. You mentioned, Ambassador, in the beginning that Vladimir Potanin was – is one of the most important oligarchs. So why did it take so long for the U.S. to sanction him? And do you foresee any effects on the global economy given his nickel company – Nornickel – role in global supply chains? Thank you. 

AMBASSADOR O’BRIEN: Yes, thanks for that. No, I think we were watching carefully. His business changed a bit after the invasion – he was purchasing items – and so we were watching carefully to see where his business went and what kind of impact there would be from designating him. I think there are a series of exemptions, licenses, and wind-down periods that – I mean, we’re very comfortable that it will not produce a spike in prices or a restriction in supplies on any of the key commodities that his companies provide. 

MODERATOR: Thank you, sir. I will go to another submitted question from Değer Akal, Deutsche Welle Turkish: “The Turkish Government repeatedly stated that Turkey does not intend to join the sanctions against Russia, and that there are statements from both Erdoğan and Putin regarding increasing economic relations between both countries, also the creation of a regional gas hub in Turkey. Could you please elaborate on what the U.S. expects from Turkey regarding sanctions? What are your concerns, and how does the U.S. administration evaluate Erdoğan and Putin’s plans to increase economic cooperation and the creation of this gas hub?” 

AMBASSADOR O’BRIEN: Yeah, so Turkey plays a very important role in many ways in this is conflict. I mean, for example, the drones that it is helping Ukraine to make have been very important on the battlefield. As well, Turkey is the sort of sponsor and mediator of the UN Black Sea Grain Initiative. Obviously, any exports through the Black Sea need to work their way through the Bosphorus, so Turkey’s role has been very important on both the humanitarian and the military side of this conflict. 

We have been extremely clear with both the Turkish Government and with Turkish private sector that we expect compliance with the sanctions. We have seen the Turkish private sector be very clear on this and largely in compliance. What I anticipate over the next months are a couple of things. One, we’ll continue to engage closely with the Turkish authorities and with the private sector so that we see compliance, and when there’s a lack of compliance there will be some action taken. Sometimes that action is additional sanctions for material support of sanctions evasion; sometimes it’s other steps that stop the offending behavior. The – and we’ll keep working in that way. 

I think there have been – there were some submitted questions and there’s general discussion about how Turkey will react to the price cap on oil. What we anticipate is that China, India, and Turkey, as major buyers of Russian oil, will negotiate very good prices for themselves and be – the volume sold to them will come in under the price cap, so it would be in compliance even if the countries do not join formally the price cap coalition. And that’s an example of the kind of way we see this moving forward. 

And certainly, as our sanctions evolve and we begin to anticipate or adjust to the way Russia attempts to gather more resources for this war, that will mean that we’ll continue consultations with Turkey, and it may have to modify some of its plans for continued engagement with Russia. 

MODERATOR: Thank you, sir. We’ll go to another live question. Padagogi Sky (phonetic). Padagogi, you have the mic. Please tell us your outlet too. 

QUESTION: Can you hear me? 

MODERATOR: We can hear you, yes. 

QUESTION: Perfect. Mr. Ambassador, Turkey, a NATO Ally, avoids OFAC sanctions throughout, as we heard before. So do you plan to do something about it? And are U.S.-Turkey relations affected in a way? 

AMBASSADOR O’BRIEN: I didn’t hear what the it was in the first sentence of the question. I’m sorry. 

QUESTION: Turkey, a NATO Ally, avoids the OFAC sanctions to Russia. Do you plan to do something about it? And are U.S.-Turkey relations affected in a way? 

AMBASSADOR O’BRIEN: Yeah, I just gave an answer on Turkey. I think just to summarize it, we discuss this often with Turkey. Turkey plays a number of important roles in different facets of this conflict, and as always with Turkey, we have very open and frank exchanges and we’re very clear that where our interests require us to enforce our sanctions we will, and we will impose sanctions as needed. That’s just a part of having a working relationship with an important partner. So yeah, it affects the relationship, but it’s just part of working together closely as we do. 

MODERATOR: Thank you, Ambassador. I think we have time for one more question. We’ll take one of the submitted questions from Momchil Indjov from Club Media in Bulgaria. He asks, “Has the U.S. imposed sanctions on political parties represented in both houses of the Russian parliament? And if so, would there be sanctions against political parties in the EU and elsewhere which maintain close contacts with those sanctioned Russian parties, and of which kind?” 

AMBASSADOR O’BRIEN: So I think the way I’d prefer to answer this is a slightly different way. So we have very strict rules about not penalizing people for beliefs or speech, but where we see actions that support this illegal and criminal war, then we will provide for sanctions. So what you’ve seen already is in some of the near abroad or in countries around the periphery of this conflict, we have taken aim at Russian-backed operations, including a cyber operation in Moldova. And I think you can expect us to look more carefully at the way Russia attempts to influence public debate and politics in a number of countries going forward. 

But the important thing is to highlight the criminality and violence that’s intrinsic to this war. So just today we designated 29 Russian governors because they are a part of the war machine. We have designated before, I think, virtually all members of the Duma and many Russian officials who are involved in the illegal effort to annex Ukrainian territory. And we’ll continue to designate, sanction people based on their behavior, which more and more of the Russian political class is showing that it is violating basic rules of the international system. And we will designate them for that. So it’s the behavior that will matter, and especially any behavior that supports the war and the attempted annexation of Ukrainian territory. 

MODERATOR: Thank you, Ambassador. Unfortunately, that is all the time we have for today. Thanks for all your questions and thank you, Ambassador O’Brien, for joining us. Before we close the call, Ambassador, I’d turn it back over to you to see if you have any final thoughts. 

AMBASSADOR O’BRIEN: No. I appreciate the questions. They were very good. Obviously, there’s a range of both specific items and broad items, but the broad point is that sanctions are constricting Russia’s freedom of operation, and we do see that on the battlefield. So thanks for your attention. 

MODERATOR: Thank you, sir. Shortly we will send an audio recording of the briefing to all the participating journalists and provide a transcript as soon as it is available. We’d also love to hear your feedback, and you can contact us at any time at TheBrusselsHub – that’s one word – @state.gov. Thank you again for your participation, and we hope you can join us for another press briefing in the future. This ends today’s press briefing. 

AMBASSADOR O’BRIEN: Thanks, John.

Office of Sanctions Coordination Briefing

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Briefing

Categories: Offie of Sanctions Coordination Speeches, Testimony and Remarks State Department Updates

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