Defense

The U.S. hopes the threat of harsh sanctions deters a Russian invasion of Ukraine—Here's how they work

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Can harsh U.S. economic sanctions deter Russia from invading Ukraine?

Economic sanctions remain one of the most powerful tools the United States has in its foreign policy arsenal. And as Russian forces continue to amass along the border with Ukraine, officials in the U.S. hope the threat of those sanctions can deter a full-scale invasion.

"The thing about sanctions is they're most effective if you don't have to use them," said Olga Oliker, program director, Europe and Central Asia at the International Crisis Group. "They're most effective if you can credibly threaten something that the other guy doesn't want enough that they don't then do whatever it is you're trying to keep them from doing."

Besides sanctions that target individuals or specific companies, some proposals involve cutting Russia off from the SWIFT system, which would remove Russian institutions from an important global financial network.

Another target is the near-completed Nord Stream 2 gas pipeline, which when operational would double the amount of natural gas moved from Russia to Germany through the Baltic Sea and likely reduce the need for other pipelines, such as the Urengoy–Pomary–Uzhhorod pipeline that runs through Ukraine.

Republican Sen. Ted Cruz of Texas has proposed a bill that would require automatic sanctions against Nord Stream 2 operators within two weeks of Russia invading Ukraine. The bill failed to pass Thursday, but picked up a handful of Democratic votes in the final tally.

Democratic Sens. Robert Menendez, of New Jersey, and Jeanne Shaheen, of New Hampshire, proposed an alternative bill that would "impose crippling sanctions on the Russian banking sector and senior military and government officials if President [Vladimir] Putin escalates hostile action in or against Ukraine."

"Ukraine's army is not the same military that it had when Russia invaded Crimea," Shaheen said in an interview with CNBC.com. "They have had their weapons systems upgraded — the United States has supported them in that. We've had trainers from both NATO and the United States working in the country. So the circumstances are very different than they were when Russia went into Crimea. And we need to do everything possible to make clear to Putin that this is going to be a united response should he take this action."

Watch the video above to find out how U.S. sanctions work, whether the U.S. can persuade allies to cut off Russia from the important SWIFT financial network, and what's next in the foreign policy standoff between the West and Russia.