Background Press Call by a Senior Administration Official on Russia Sanctions

Via Teleconference 

3:34 P.M. EST

MODERATOR:  Thank you.  And thanks, everyone, for joining today.  So, as a reminder, this call is on background, attributable to a “senior administration official,” and the contents of this call are embargoed until the end of the call.

For your awareness but not for reporting, the speaker on the call is [senior administration official].  And I think they’re going to have some remarks to start at the top, and then we can take some questions.

So, with that, I’ll turn it over to you.

SENIOR ADMINISTRATION OFFICIAL:  Yeah, thanks.  Yes, I’ll make a few comments at the top and then happy to answer any of your questions.

So, Russia’s long-previewed invasion of Ukraine has now begun, and our response has also begun.

Today, we responded swiftly and in a united fashion with our Allies and partners.  The speed and coordination of the response was historic.  We announced our first tranche of sanctions in less than a day with Allies and partners from the European Union, from the United Kingdom, Canada, Japan, and Australia.

This response was taken much faster and goes much further than what we did in 2014.

Let me say a few words about the details of the package.  First, after consultations overnight with Germany, Russia’s Nord Stream 2 natural gas pipeline will not become operational.  That’s an $11 billion investment and a prized gas pipeline controlled by Russia that will now go to waste, and it sacrifices what would have been a cash cow for Russia’s financial coffers.

But it’s not just about the money.  This decision will relieve Russia’s geostrategic chokehold over Europe through its supply of natural gas, and it’s a major turning point in the world’s energy independence from Russia.

Second, we’ve made a demonstration of the power of our financial sanctions.  And make no mistake, this is only the sharp edge of the pain we can inflict.

So, again, in lockstep with our Allies, we’re fully blocking from the U.S. and European financial systems the fifth-largest Russian financial firm, which is V.E.B. — a glorified piggy bank for the Kremlin that holds more than $50 billion in assets.

And we’re also fully blocking a $35 billion bank, Promsvyazbank, that finances the activities of the Russian military.

In plain English, the full block of these banks means they can no longer make any transactions with the U.S. or Europe, and their assets in our respective financial systems are frozen.

And let me be totally clear: No Russian financial institution is safe if this invasion proceeds.  We are ready to press a button to take further action on the very largest Russian financial institutions, including Sperbank and VTB, which collectively hold almost $750 billion in assets — or more than half the total in Russia as a whole.

Third, together with our Allies, we’ve also cut off the Russian government, the Russian Central Bank, and its sovereign wealth funds from U.S. financing.  Europe has taken a very similar measure.  That means the Kremlin can no longer raise money from the U.S. and Europe, and its new debt can no longer trade in U.S. or European markets.

Fourth, we have fully sanctioned a group of Russian elites and their family members.  These individuals have shared in the corrupt gains of the Kremlin, and they will now share in the pain.  Other Russian elites and their family members are now on notice that additional actions could be taken on them as well.

Let me also just take a minute to address a key part of the President’s speech on energy.  We were quite deliberate to make sure that the pain of our sanctions is targeted at the Russian economy, not ours.  So none of the measures are designed to disrupt the flow of energy to global markets, and we are now executing a plan in coordination with major oil consumers and oil producers towards our collective interest to secure the stability of global energy supplies.

Let me just stop there and take your questions.

Q    Hi, thank you.  So, I just want to — you know, throughout the last couple of months, there’s been talk from administration officials about the idea of starting high and staying high.  This appears, perhaps, more as starting medium.  And I was wondering how does this square with the bigger idea of starting high and staying high, not having things like SWIFT in this first tranche of sanctions.  And what was the thinking on not including some sort of levy to reinforce the German’s move on Nord Stream 2?  Thank you.

SENIOR ADMINISTRATION OFFICIAL:  Yeah, sure.  So, first of all, these are — we are starting high.  These are severe costs that we’re imposing.  Nord Stream 2, for example, is Putin’s prized pipeline.  He poured $11 billion into building the pipeline.  It would have provided billions of dollars each year in revenues.  That is now shut down after very close consultations overnight with Germany.

Second, you know, we made a demonstration out of two very significant Russian financial institutions, both of which have close ties to the Kremlin and the Russian military.  They control over $80 billion in assets.  And we’re clearly — I’m clearly signaling and the President has signaled we’re prepared to take action on other Russian banks, including the very largest ones.

And then I think it is very significant that the U.S. and Europe have fully cut off the Russian government, its central bank, and its sovereign wealth funds from financing — from receiving financing from the U.S. and Europe.  Over time, that’s going to mean higher borrowing costs, less capacity to invest, lower growth, lower productive capacity, and less overall ability for Putin to exert leverage on the world stage.  So these costs are severe.

The second point I would make is: Look, this is the beginning of an invasion and this is the beginning of our response.  If Putin escalates further, we will escalate further, using both financial sanctions and export controls, which we’ve yet to unveil.

And I want to also underline: Our response goes well beyond sanctions.  We’re continuing to fortify NATO’s eastern flank to reinforce our sacred commitment to defend every inch of Allied territory.

You heard the President say that additional troops and equipment are going to be shifted within Europe to the Baltics.  We’re going to continue to provide defensive military assistance to Ukraine.  Already, we’ve provided $650 billion in the past year — the most ever.  And we’re going to continue to work with Allies and partners to prepare for economic assistance that can help Ukraine become a successful alternative to Russian-style kleptocracy, which may be Putin’s greatest fear of all.

[Senior administration official], did you ha- — were you saying something?

MODERATOR:  No, no.  I think — [senior administration official], I think you were done, so I think we’re good for a second question, please.

SENIOR ADMINISTRATION OFFICIAL:  Yeah, please.

Q    Yeah, who are the Russian elites that are being sanctioned?  Do they include Vladimir Putin?  And if Putin is not included, why not?

SENIOR ADMINISTRATION OFFICIAL:  Yeah, so I’ll name the Russian elites, which also includes their family members — and I apologize for the mispronunciation:  Aleksandr Bortnikov and his son, Denis; Sergei Kiriyenko and his son, Vladimir; and Petr Fradkov, who is the CEO of Promsvyazbank.  So these individuals and their relatives are all now fully blocked.

With respect to President Putin, I’ll just repeat what the President has said is: And all options remain on the table.

Q    Hey, guys, thanks for doing this.  I guess I just wanted to ask: You know, if we’re not going with the maximum sanctions right now, is there a fear that this sort of concedes the breakaway territories to the Ukrainian control — or to Russian control, rather?

Would you have gone bigger if not for — you know, we know that there was some reluctance in Europe heading into to this.  And so, if you could at all talk about how this package came together and how European concerns weighed on what you went forward.

And then, I was also wondering if you had an update on the — the summits, both with Lavrov and Putin, that had been sort of floated — the Lavrov one later this week — in light of what’s happened.

SENIOR ADMINISTRATION OFFICIAL:  Yeah.  Hi, Justin.  So, again, I mean, these — these are severe costs that we’re imposing today: shutting down Nord Stream, fully blocking two major financial institutions, cutting off the Russian government from Western financing.  They’re severe actions, but this was the beginning of an invasion, and therefore this is the beginning of our response.

And I think, more fundamentally, just to get your question directly: No one should think that our ultimate goal is to max out on sanctions.  They’re not an end to themselves.  Sanctions are meant to serve a higher purpose, which is to deter and prevent.

So, we want to prevent a large-scale invasion of Ukraine that involves the seizure of major cities, including Kyiv.  We want to prevent large-scale human suffering, possibly tens of thousands of lives that could be lost in a full-scale conflict.  And we want to prevent Putin from installing a puppet government that bends to his wishes and denies Ukraine the freedom to set its own course and choose its own destiny.  That’s what this is all about.

With respect to the potential discussions between Secretary Blinken and Minister Lavrov, I would just refer you to the State Department.  Secretary Blinken is about to give remarks, and I think he’ll have more to say on that.

Q    Hey, thanks so much for doing this.  I wanted to ask, regarding SWIFT: At what point in the — and, I guess, the steps that Putin can take — perhaps, you know, taking a wider swath, going beyond these republics — is SWIFT going to be used or pulled from?

And second of all, should Americans expect for some higher gas prices in the coming weeks or months?

SENIOR ADMINISTRATION OFFICIAL:  Yeah.  Hi, Franco.  So, with respect to SWIFT, as I mentioned last Friday and as you’ve seen today, SWIFT is not part of the first package of sanctions that we’ve rolled out.

And look, we think there are other severe measures that have comparable impact on Russia that we can take in lockstep with Europe and that don’t have the broader spillover costs.  But I — we are not taking SWIFT off the table.  It will remain an option that we can deploy, depending on — depending on how Russia makes its next move.

With respect to gas prices, energy prices, you know, I’ll just — I know there’s been some talk about whether energy prices are moving higher because of the Nord Stream 2 decision, and I would just emphasize: They are not moving higher because Nord Stream 2 is halted.  They’re moving higher because they’re worried that Putin will weaponize energy supply and hold the world hostage.

So, the right response is to reduce Europe’s addiction to Russian gas, and that’s what today’s action does.

And in the meantime, we’ll continue to work with Europe to surge natural gas supplies from all over the world.

And as I mentioned at the outset of this call, with respect to oil, we have an ongoing effort right now to execute on a plan that’s in coordination with oil producers and oil consumers to make sure the world knows we’re going to have stable energy supplies.  And I think — I expect you’ll be hearing more from other countries very soon about that coordination effort.

MODERATOR:  Next question, please.

Q    Hi.  (Inaudible) anyone have that sanctions deter Vladimir Putin, whether they’ve been small or large.  Is there anything else in your toolkit beside sanctions?  Because he doesn’t seem to be responding to these.

And was there any thinking that, given what President Zelenskyy said in Munich this weekend, you should start big — bigger — with SWIFT and other things that might get his attention rather than escalating slowly?

Thank you.

SENIOR ADMINISTRATION OFFICIAL:  Yeah.  Thanks, Andrea.  Well, you know, sanctions — they work over time.  And the pain is mounting in Russia.  The stock market — if you look at its performance since November, it’s down more than 30 percent.  The currency over the same time period is — has lost over 10 percent of its value.  The interest rate that the markets are charging the Russian government to borrow has now spiked well above 10 percent.

And, you know, if you look back to 2014 when we imposed sanctions, the comments coming out of the leadership of the Russian government suggest that were it not for the costs that we imposed then, which are similar to what we’re imposing now, Putin may have gone much further, perhaps all the way to Kyiv.

Now, sanctions are not the only tool in our toolkit.  As I mentioned, export controls are a key component of our potential sanctions response.  And they’re similar in concept to financial sanctions.  In both cases, we’re denying something to Russia that they need and they can’t replace from anywhere else or produce at home.

And so, export controls are really potent because we’re talking about critical technology inputs that Russia needs to diversify its economy, modernize its economy.  And we are fully prepared with a very large number of countries across the world to implement those export control measures if the invasion proceeds.

MODERATOR:  I think — could we do our last question, please?

Q    Thanks.  [Senior administration official], you mentioned the sanctions would hit new issues of sovereign debt.  Are there any — is there any impact on existing issues trading in the secondary market?  And what’s your assessment of the ability or the willingness of Chinese financial institutions to fill the void left by the U.S. and Europe?

SENIOR ADMINISTRATION OFFICIAL:  Yeah.  David, so this — we’ve designed these sanctions so that Russia cannot raise money from U.S. investors.  And Europe has implemented a very similar measure.  And so, it’s the primary market that matters in terms of raising money.  And that’s why we’ve directed our sanction towards that portion of the market.

Whether — as to whether China can replace U.S. and European investors: I mean, I think the numbers speak for themselves in terms of the percentage of the total that Dollars and Euro represent as a — as a source of borrowing.  Also, just as currencies that are used to make payments, to receive payments, and also to store wealth, store value.

China’s share on all those metrics I just mentioned are in the low single digits.  So it’s — it is — it is nowhere close to a substitute for the Western financial system.

MODERATOR:  All right.  Thanks, everyone, for joining today.  As a reminder, this call was on background, attributable to “senior administration official.”  The embargo lifts officially now.  If you have any questions, please feel free to reach out to me, and we’ll make sure to get back to you.

Thanks, everyone.

SENIOR ADMINISTRATION OFFICIAL:  Thank you.

3:52 P.M. EST