West threatens to ratchet up sanctions on Russia to force a ceasefire in Ukraine

The Group of Seven (G7) nations on March 14 stressed the need for strong and credible security arrangements to support any ceasefire between Russia and Ukraine, warning Moscow to match Kyiv’s willingness to halt hostilities or risk additional sanctions, according to a final draft statement.

The move came a day after the US Trump administration allowed a key licence permitting international companies to process payments for Russian oil and other energy resources through sanctioned Russian banks to expire, according to Reuters. These actions are seen as part of a carrot and stick approach to try and force Moscow to the negotiating table.

"G7 members called for Russia to reciprocate by agreeing to a ceasefire on equal terms and implementing it fully," the draft document stated, according to Reuters. The G7 comprises the UK, Canada, France, Germany, Italy, Japan and the US.

The text was approved by senior diplomats but still requires ministerial endorsement, according to G7 officials.

The group emphasised that any ceasefire must be fully respected and highlighted the importance of robust security measures to ensure Ukraine can deter and defend against any renewed aggression.

The US Treasury Office of Foreign Assets Control (OFAC) has introduced at the start of Russia’s war in Ukraine a General Licence 8L, enabling foreign companies to continue paying for Russian oil and gas via sanctioned Russian banks, to ensure their security of energy supply was not affected by the restrictions. It has been repeatedly renewed since then, but on March 12, OFAC allowed it to lapse.

A representative of the US Treasury confirmed to Reuters on May 13 that the licence had not been renewed intentionally, without giving exact reasons. The representative simply noted that the Trump administration was focused on ending the war in Ukraine and was willing to impose further sanctions to achieve this.

General Licence 8L became particularly important after the previous Biden administration imposed sanctions last November on Gazprombank, which had been facilitating payments for the bulk of Russian oil and gas. Its role was particularly important for Russian gas exports to Europe at the time, given that a 2022 Kremlin decree, which has since been reversed, required buyers in countries that Russia views as “unfriendly” to use Gazprombank only for transactions.

After the targeting of Gazprombank, dealings with which were not subject to General Licence 8L, buyers of Russian oil and gas had to resort to using other sanctioned Russian banks like Alfa and Sberbank. That option is no longer possible, and so buyers will have to use smaller, less known Russian banks not currently under sanctions, or more creative solutions such as the use of intermediaries in third countries or crypto payments.

Should the US and its allies continue to ratchet up sanctions, other Russian banks or methods for transactions could also be targeted.