Defeating Putin: the development, implementation and impact of economic sanctions on Russia/Summary
We deplore the illegal and unprovoked invasion of Ukraine by Russia. The Prime Minister was right to insist that the UK, alongside its international partners, implement stringent economic sanctions against Russia (paragraph 2).
The Russian economy, and its citizens, have already been substantially hit by the significant sanctions imposed by the UK and its international partners, and Russia faces both a significant hit to the size of its economy and significant inflation. One of the boldest moves in the financial sanctions package has been the sanctions levelled at the Russian Central Bank, which appear to have denied access by Russia to half of its reserves. The energy sanctions already imposed are likely to inflict significant damage on the Russian economy. If energy sanctions and reductions in demand are introduced in line with the statements made by the United States, EU, the UK and others then the impact on Russia’s economy could be catastrophic and long lasting (paragraph 40).
Where there remain elements of the sanctions net around Russia not yet closed, including to allow energy payments and supplies, the Government should consider how to ensure there is minimal leakage (paragraph 41).
The sanctions against Russia are without precedent given the size of its economy and its integration with the West. The implementation of sanctions requires compliance action by the private sector. We are therefore concerned that guidance for those who have to implement sanctions has, at least in the initial stages, appeared to have lagged behind that available in the United States. The Government must, as a priority, ensure that its guidance is clear, precise and readily available, to allow the effective implementation of sanctions across the private sector (paragraph 49).
The Government is right to see economic sanctions as a critical weapon in resisting Putin’s war. As such the Government needs to consider increasing the Office of Financial Sanctions Implementation’s resources without delay and to provide surge capacity in the form of staff with appropriate expertise (paragraph 50).
We welcome the reminder from the regulatory authorities to cryptoasset firms that cryptoassets are within the scope of the sanctions regime. We recommend that the Government take a watchful approach to how cryptocurrencies are used to potentially evade sanctions, and ensure it has the knowledge and expertise to effectively monitor developments in this area (paragraph 53).
We note the caution expressed by witnesses about the impact of possible secondary sanctions. This is largely a matter for the Foreign, Commonwealth and Development Office, which will need to take into account the economic cost to the UK, but also the extent to which Russia circumvents Western sanctions through non-sanctioned Russian reserves and her trade with other countries (paragraph 56).
Despite producing significant amounts of oil and gas, the UK is not protected from the economic consequences of sanctioning Russian oil and gas production. The price paid for gas in the UK is dependent on the level of demand for gas in Europe. The price paid for oil in the UK is dependent on the global price of oil. Further sanctions on Russian oil or gas will lead to higher prices which in turn will feed through to UK households and businesses (paragraph 64).
There will be a cost to the UK economy of the economic sanctions imposed on Russia. It is not possible yet to quantify that cost. But we believe that, on the information currently available, it is most definitely a cost worth bearing in order to aid Ukraine in opposing Russian aggression. However, that cost, combined with the already present pressures in the UK on the cost of living, will impact the whole country, and will be felt particularly by low income households (paragraph 76).
As the Government moves forward with its sanctions strategy, it must take further action to support UK households, in particular those on lower incomes, to manage the subsequent rise in energy and other costs (paragraph 77).
Business confidence has wavered in response to Russia’s invasion of Ukraine. The Government should consider what steps can be taken to boost business investment and growth and specifically how it can help firms which have been directly affected by the economic sanctions against Russia. The Government should also look to accelerate the UK’s transition to a more secure energy supply whilst also reaffirming their commitment to net zero and a just transition (paragraph 78).