On April 6, the Trump Administration finally began to implement the Russia sanctions voted by Congress last year, naming a number of Putin-pals and Russian companies to a Treasury Department blacklist (the list of Specially Designated Nationals, or SDNs).  This time, the effects were dramatic, causing the ruble to fall 4.5 percent against the dollar.

The reason was simple.  The new rules not only bar US companies from doing business with listed individuals/entities; they also authorize Treasury to impose “secondary sanctions” on foreign banks by adding them to the same SDN list if they are caught facilitating significant transactions for the bad-actors.  The threat of secondary sanctions effectively requires the global banking system to choose between dealing with the Russians and doing business within the US financial system, which is no choice at all.

Treasury has yet to levy any such sanctions, but mere warnings to British banks (to stop helping oligarchs convert rubles into London real estate) have reportedly led to speculation that risk-averse banks there may simply cancel all of their Russian accounts.  And the unspoken threat that Treasury might exercise its discretion with respect to one of them – Oleg Deripaska – caused the share price for his giant company Rusal to fall by 50 percent overnight.   

Still, the power of such sanctions is only as great as the credibility of the threat that Treasury will actually impose them.  When UN ambassador Nikki Haley promised to name more Russians to the SDN list, the threat began to look imposingly real.  But President Trump has just nixed that plan, raising the question: Will his administration now back off the threat of secondary sanctions generally?

The markets seem to think so.  The ruble rose 1.3 percent on the news.