WASHINGTON — As the world’s wealthy democratic powers roll out new sanctions against Russia in response to horrifying images of executed Ukrainians in the city of Bucha, it has become clear that the easiest options are now exhausted and stark differences have emerged among allies over next steps.

The European Union proposed a first stab at curbing Russia’s energy sector in response to its invasion of Ukraine launched in February, banning imports of Russian coal. But EU countries remain divided even over this move, much less restricting imports of Russian oil and gas that are more important to their economies.

The United States and Group of Seven (G7) allies announced new sanctions on Russia’s largest lender, Sberbank, more state-owned enterprises and more Russian government officials and their family members, cutting them out of the US dollar-based financial system.

The United States also has banned Americans from new investment in Russia and barred Moscow from paying sovereign debt holders with money in US banks.

Although Russia’s heavily restricted rouble rallied to a six-week high on Wednesday, US Treasury officials say the sanctions are starting to turn Russia back into an austere, 1980s Soviet-style closed economy.

But the US sanctions contain carve-outs allowing Russia to continue collecting revenue from energy exports, which can help fuel its Ukraine invasion. US Treasury Secretary Janet Yellen told US lawmakers on Wednesday that stronger curbs on Russian energy are not yet possible for European allies dependent on Russian oil and gas.

Russia supplies around 40% of the European Union’s natural gas consumption, which the International Energy Agency values at more than $400 million per day. The EU gets a third of its oil imports from Russia, about $700 million per day.

“We are at the point where we have to take some pain,” said Benn Steil, international economics director for the Council on Foreign Relations think tank in New York. “The initial batches of sanctions were crafted as much to not hurt us in the West as much as they were to hurt Russia.”

The divisions in Europe have become more apparent this week. After Lithuania announced on Saturday it would stop importing Russian gas for domestic consumption, Austrian Finance Minister Magnus Brunner voiced opposition to sanctions on Russian oil and gas, telling reporters in Luxembourg that these would hurt Austria more than Russia.

NEXT STEPS
Lack of unity on curbing energy imports means that options are limited to increase pressure further, but the investment ban announced on Wednesday could push more multinational firms to leave Russia, said Daniel Tannebaum, a former compliance officer at the Treasury’s Office of Foreign Assets Control.

“You could outright start banning trade in more industries,” a move that would cut Russians off from more types of Western products such as pharmaceuticals, similar to a luxury goods ban imposed in the early days of the war, said Mr. Tannebaum, who leads consulting firm Oliver Wyman’s anti-financial crime practice.

The United States has been pushing European allies to inflict more pain on Russia while trying to make sure that the alliance against President Vladimir Putin does not fray, a balance that only gets tougher.

“You’ve kind of hit the ceiling — on both sides of the Atlantic — for what can be done easily and what can be done in short order,” said Clayton Allen, US director at the Eurasia Group political risk consultancy, referring to the sanctions.

To move to a tougher round of sanctions, US officials will need to provide some assurances to European countries that energy markets and supplies can be stabilized to avoid severe economic hardship, Mr. Allen said. An economically weakened EU helps no one, Mr. Allen added.

“If Western Europe is plunged into a recession, that’s going to drastically limit the amount of support – both moral and material – that they can provide to Ukraine,” Allen said.

U.S. Secretary of State Antony Blinken is expected to press the case for more actions in Brussels this week at NATO and G7 meetings of foreign ministers. U.S. Deputy Treasury Secretary Wally Adeyemo held similar meetings last week in London, Brussels, Paris and Berlin.

There also are still loopholes to close, including continued sales by German and French companies into Russia, and the ongoing hunt for luxury yachts and other assets parked by Russian oligarchs, according to one European diplomat involved in sanctions talks. — Reuters

HONG KONG has ceased to function as an international aviation hub as it curbs inbound flights and quarantines arriving passengers, according to a trade group representing hundreds of airlines worldwide.

“It’s effectively off the map now, and I think it’s going to be difficult for Hong Kong to recover,” Willie Walsh, director general of the International Air Transport Association, said at a briefing Wednesday. “It’s going to lag significantly behind the recovery that we’re seeing elsewhere and has led to a tough time for all airlines operating there.”

Even the city’s shortened isolation requirements for arriving passengers — quarantine was halved to one week this month — will deter travelers, Mr. Walsh said.

The IATA chief said that with much of the rest of Asia reopening he remained optimistic Hong Kong could start to relax its border restrictions.

However, Hong Kong is still banning flights even after rolling back some of the world’s strictest inbound travel curbs. There’s been increasing frustration over the city’s closure for much of the past two years due to pandemic restrictions.

“The restrictions there have been very severe and have led directly to the cancellation of a lot of services with airlines — effectively finding it incredibly difficult, if not impossible to operate there,” added Mr. Walsh.

IATA has warned places that continue to attempt to lock out the disease, rather than managing it, risk missing out on enormous economic and societal benefits through the restoration of international travel. The group represents almost 300 airlines accounting for 83% of global air traffic.

Singapore Airlines Ltd., Emirates, Cathay Pacific Airways Ltd., Qatar Airways QCSC, Korean Air Lines Co. and Malaysia Airlines were slapped with week-long bans this month after breaching Hong Kong’s so-called circuit-breaker mechanism. A stoppage can be meted out if three or more coronavirus disease 2019 (COVID-19) cases are found on the same flight, or if there’s one confirmed infection and another non-compliant passenger.

Hong Kong eased a raft of travel measures on April 1, including lifting an outright ban on inbound flights from nine countries, including the US, the UK and Australia, and reduced quarantine for inbound travelers to one week.

Mr. Walsh said the feedback IATA was getting from airlines was that quarantine remained discouraging, and people would not fly in the current environment unless they really had to. — Bloomberg