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In a television speech that evening, Putin made serious, sometimes bizarre allegations against Ukraine, the United States and NATO. He warned that nuclear weapons could be manufactured in Ukraine. “We know that there have been reports that Ukraine wants to produce its own nuclear weapons. This is not an empty boast,” said the Kremlin chief. “Ukraine actually still has Soviet nuclear technologies and delivery systems for such weapons.”

The EU wants to react to Russia’s decision with sanctions. The punitive measures are intended to hit those involved in recognizing the eastern territories of Ukraine held by pro-Russian separatists, Commission President Ursula von der Leyen and Council President Charles Michel said on Monday evening.

The US government will also respond to Russia’s decision with punitive measures. US President Joe Biden will issue a corresponding order shortly, a spokeswoman for the White House said on Monday.

Chancellor Olaf Scholz, who was still on the phone with Putin on Monday afternoon, was unable to dissuade the Kremlin chief from his decision.

The signs point to confrontation. Speaking at the televised National Security Council meeting, Russia’s Defense Minister Sergey Shoigu said Ukraine had amassed significant troops and he suspected the country was trying to retake areas occupied by the separatists.

Such claims could be used by Russia as a pretext for an attack. Putin also spoke at the memorable production. He no longer sees any chances of implementing the Minsk agreements, which are intended to bring peace to eastern Ukraine.

“We have come to the conclusion that there is no prospect” for the deal, he said – cutting the basis for diplomatic initiatives by Germany and France.

Together with French President Emmanuel Macron, Scholz had campaigned for a revival of the so-called Normandy format, in which Ukraine and Russia, mediated by Germany and France, discussed the implementation of the Minsk agreements.

How things will continue now offers a lot of material for speculation. It is possible that Russia will be satisfied with the incorporation of the eastern Ukrainian territories. Kiev, the capital of Ukraine, would then escape the feared storm.

But recognition in itself is an act of aggression, an attack on the territorial integrity of a sovereign country and, in all likelihood, the prelude to an economic war with the EU, Britain and the US. The West has threatened Russia with “high costs” – and has prepared a comprehensive package of sanctions.

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The secret negotiations about it are practically complete. For weeks, top officials of the EU Commission brooded over the plans, consulted with member states and held conferences with the USA, Canada and Great Britain. The result is a coordinated set of punitive measures.

There are still some details to be clarified, but on the whole, according to various sources in Brussels, an agreement has been reached. The EU regards the agreement as a success of its common European foreign and defense policy. Commission chief Ursula von der Leyen and her advisors have succeeded in establishing the EU as the central actor in deterrence efforts. In past crises, Brussels was often a sideshow, but not this time.

However, the deterrent did not work. Moscow apparently accepts the economic penalties. It’s difficult to live under sanctions, but the pressure will ease over time, predicted Dmitry Medvedev, the former president who now serves as deputy head of the Russian Security Council.

In fact, the sanctions are characterized by compromises – an expression of an effort to maximize the effectiveness of the measures and minimize their repercussions on Europe. “Sanctions must be effective but sustainable,” said Italian Prime Minister Mario Draghi.

Capital freezes for Russian banks

The sanctions package provides for comprehensive capital freezes for Russian banks – but not an exclusion from the payment service provider Swift. There will be an export ban on certain high-tech components – but not a general trade embargo.

And it most likely includes a halt to the Nord Stream 2 Baltic Sea pipeline – but not a general boycott of commodity exports.

It is not yet clear whether the agreed sanctions will be imposed in their entirety or initially in stages. However, the first statements made by der Leyens and Michels point to a step-by-step approach.
British Prime Minister Boris Johnson reiterated over the weekend that the West would impose the “toughest possible sanctions” in the event of an invasion. Not only will Putin’s environment be hit, but all companies that are of strategic interest to Russia, he told the BBC.

The companies would be prevented from raising capital on the western financial markets. They should also no longer be allowed to trade currencies such as dollars and pounds.

London is the capital of global forex trading. According to the Bank for International Settlements, 43 percent of global sales are processed here. 31 Russian corporations and banks are secondary listed on the London Stock Exchange, including Rosneft, Gazprom and Sberbank.

All of these companies could be subject to sanctions. The shares could be suspended from trading, and any dealings with the companies could be banned. The United States is planning similar steps.
The question is whether Johnson would go that far. Because that would also affect the Western business partners, investors and customers of these companies. The energy group BP, for example, holds a fifth of the shares in Rosneft. Large asset managers such as Blackrock are also invested.

Close ties with the Russian economy

The EU faces a similar dilemma. Finland and the Baltic States are closely intertwined with the Russian economy. Sanctions would hit them hard. Therefore, there are plans in Brussels to support these countries.

In the USA, on the other hand, concerns about the financial sector are the focus: the White House is in close contact with the Wall Street institutes. Back in January, managers from Goldman Sachs, JP Morgan Chase, Citigroup and Bank of America met with US government officials.

Russia has also prepared: companies have halved their loans from foreign banks since 2014, and the government has increased its foreign exchange and gold reserves.

From the point of view of the rating agency Fitch, Russia could better withstand new sanctions. First of all, the Russian population would be particularly affected: They are threatened with dramatically higher prices, including for food, and a devaluation of savings.

More: Finding the Spark: How Putin Might Justify an Invasion