WASHINGTON—The U.S. is prepared to impose sanctions and export controls on critical sectors of the Russian economy if Russian President Vladimir Putin invades Ukraine, and is working to mitigate market shocks if Russia withholds energy supplies in retaliation, officials said.
Taking a page out of the Trump administration playbook to pressure Chinese telecom giant Huawei Technologies Co., senior administration officials on Tuesday described potentially banning the export to Russia of various products that use microelectronics based on U.S. equipment, software or technology.
While the officials didn’t specify the products, they said that the goal would be to hit critical Russian industrial sectors that President Putin has given priority to, such as artificial intelligence and quantum computing.
“The export control options we’re considering alongside our allies and partners would hit Putin’s strategic ambitions to industrialize his economy quite hard, and it would impair areas that are of importance to him,” a senior administration official said.
Administration officials declined to provide many specifics on the kinds of sanctions it would impose, but said the moves would exacerbate the selloff in Russian markets, raise the country’s cost of borrowing and hurt the value of Russia’s currency.
Russia has amassed more than 100,000 troops along Ukraine’s borders, moved tanks and other military gear westward from bases in the east, and deployed troops to neighboring Belarus, which also borders Ukraine. White House officials are preparing for an incursion, and in addition to preparing sanctions, the U.S. said it would bolster NATO forces in Eastern Europe.
After weeks of calls and meetings in European capitals, U.S. and European officials said Tuesday they were seeing “convergence” on prospective sanctions among the U.S. and European nations, in part due to assurances the U.S. is working to secure energy supplies should Mr. Putin invade Ukraine. U.S. officials said they are looking for energy stockpiles in North Africa, the Middle East, Asia and inside the U.S.
“If Russia decides to weaponize its supply of natural gas or crude oil, it wouldn’t be without consequences to the Russian economy,” one of the U.S. officials said. “This is a one-dimensional economy, and that means it needs oil and gas revenue at least as much as Europe needs its energy supply.”
European officials said the Biden administration’s hands-on approach in consulting them and keeping them informed of U.S. plans, including the personal outreach by Mr. Biden and his top officials, has spurred cooperation.
Still, Russia’s ability to mitigate the impact of Western sanctions is significant—far higher than the likes of Iran, whose economy plummeted into a deep slump in 2018 after the Trump administration reimposed nuclear sanctions.
The Bank of Russia puts the country’s reserves at around $630 billion at the end of 2021 and Europe is dependent on Russia for almost 40% of its gas supplies, an export stream sanctions are unlikely to cut off. Russia’s trade and political links with China also make it less vulnerable to being isolated from the world economy.
The U.S. announcement came a day after President Biden discussed the Ukraine crisis with several European leaders. The leaders, including British Prime Minister Boris Johnson, French President Emmanuel Macron and German Chancellor Olaf Scholz, discussed their coordination of sanctions measures and the situation in Ukraine.
The leaders agreed that no major sanctions options should be taken off the table, a European Union official said, even if some would likely be used only as a last resort. Those might include measures that could cause collateral economic harm to Western countries, like cutting Russia out of the SWIFT financial network that enables banks to settle transactions across the world, and embargoes on energy imports from Russia.
“The leaders agreed that, should a further Russian incursion into Ukraine happen, allies must enact swift retributive responses including an unprecedented package of sanctions,” Mr. Johnson’s office said in a statement after the call. “They resolved to continue coordinating closely on any such response.”
The export controls under consideration, the officials said, would be implemented through a powerful U.S. policy tool known as the Foreign Direct Product Rule, which the Trump administration used to cripple China’s Huawei.
Using the rule to target a country or multiple industrial sectors as opposed to a single company is a novel strategy that could potentially have wide-ranging effects given the global dominance and ubiquity of U.S. chip-making tools and software. For example, the U.S. could use the rule to block a foreign company that made a phone in a different foreign country from selling that item to Russia if the device uses any U.S. chips.
The impact of the rule would depend on how broadly officials decide to apply the restrictions and on the precise wording in any regulation. The Trump administration made multiple attempts before settling on language for a regulation that ultimately exacted a meaningful impact on Huawei.
—Catherine Lucey contributed to this article.
Write to Gordon Lubold at Gordon.Lubold@wsj.com, Kate O’Keeffe at kathryn.okeeffe@wsj.com and Laurence Norman at laurence.norman@wsj.com
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8