As soon as Russia unleashed its huge assault on Ukraineon Thursday morning, speculation mounted over how the US, the EU and the Western alliance would respond in terms of sanctions.

A wave of sanctions had already been announced on Wednesday, after Russian President Vladimir Putin ordered troops into the separatist-held regions of Donetskand Luhansk in eastern Ukraine.

Those measures were widely dismissed by several analysts as being far too mild to have any significant impact on Russia, leading to suggestions that the toughest sanctions would come in the event of a full-scale invasion.

As the scale of Putin's war became apparent on Thursday, Western allies announced several new sanctions, variously described as "massive" and "devastating."

Hitting the biggest banks

In a live broadcast, US President Joe Biden announced a set of measures he said would "impose severe cost on the Russian economy, both immediately and over time."

Whereas the first wave of US sanctions hit smaller financial institutions, this round hit Russia's two biggest banks: Sberbank and VTB Bank, both state-owned.

Sberbank holds around one-third of total Russian bank assets, but the new sanctions will block US dollar transactions going forward. VTB Bank holds around 16% of Russian bank assets and it has been fully frozen by the US sanctions via "full blocking sanctions."

The US banking measures also targeted three other major Russian financial institutions —  Otkritie, Novikom, and Sovcom — as well as just under 90 financial institution subsidiaries around the world connected to the sanctioned banks.

According to the US Treasury, 80% of Russian financial institutions' daily foreign exchange transactions of $46 billion (€41 billion) are conducted in dollars.

"By cutting off Russia's two largest banks — which combined make up more than half of the total banking system in Russia by asset value — from processing payments through the US financial system, the Russian financial institutions subject to today's action can no longer benefit from the remarkable reach, efficiency, and security of the US financial system," the Treasury said in a statement.

"The actions...will have a deep and long-lasting effect on the Russian economy and financial system," it added.

Elina Ribakova, deputy chief economist at the Institute of International Finance, told the Financial Times ahead of the announcement that hitting the largest banks "could have very important systemic effects on Russia."

Meanwhile, EU leaders met in Brussels on Thursday night and released a statement saying the 27 member states had agreed on sanctions covering the financial sector. The EU sanctions will block two private banks from EU financing, including Alfa-Bank, the country's biggest private bank. Five state-owned banks are already blocked from Russian financing.

The UK took similar actions, imposing asset freezes and cutting Russian banks off from sterling exchanges.

Export controls and other measures

Biden also announced export blocks on critical technology, while the EU's new list of measures is expected to block the sale of aircraft and associated parts to Russia. Additional export blocks will target tech needed to upgrade oil refineries.

Other US and EU export controls will target various goods used by the military, including sensors, lasers and various telecommunications applications. The sanctions also aim to hit Russia's supply of semiconductors. Taiwan's TSMC, the world's biggest chipmaker, issued a statement on Friday saying it would comply with the sanctions.

The sanctions stop short of significantly hitting Russia's crucial energy sector. Gazprombank, Russia's third biggest lender bank and the main channel for foreign payments for oil and gas, escaped harsh restrictions. Cutting it off from the US financial system could significantly affect Europe's energy supply.

The new wave of US sanctions have also targeted several more Russian elites, as well as some in Russian ally Belarus.

"Treasury is also sanctioning additional Russian elites and their family members and imposing additional new prohibitions related to new debt and equity of major Russian state-owned enterprises and large privately owned financial institutions," the US Treasury said. "This will fundamentally imperil Russia's ability to raise capital key to its acts of aggression."

What about SWIFT?

There had been considerable speculation that Russia could be cut off from SWIFT, the international payments system — an option widely regarded as one of the most punitive available.

However, it appears that the allies have demurred from using that option, due to opposition from several European countries, including Germany.

"It is always an option but right now that's not the position that the rest of Europe wishes to take," Biden said of the SWIFT option not being exercised at this time.

European countries' reluctance to ban Russia from SWIFT prompted an angry reaction from Ukrainian Foreign Minister Dmytro Kuleba. "I will not be diplomatic on this," he tweeted. "Everyone who now doubts whether Russia should be banned from SWIFT has to understand that the blood of innocent Ukrainian men, women and children will be on their hands too. BAN RUSSIA FROM SWIFT."

Punitive but not a deterrent

Alexandra Vacroux, executive director of the Davis Center for Russian and Eurasian Studies at Harvard University, told DW that the SWIFT option would have a "very serious impact" on Russia.

She also pointed out that limiting Russia's capacity to use the dollar would have a similar impact. However, she cautioned that the most severe moves on Russia would also hurt the West as well.

"Of course, that is also going to be very bad for Europe because if they can't pay for Russian gas, using correspondent banks that use dollars in the middle of the transaction of buying their oil and gas from Russia, it's going to create havoc on the gas markets and possibly result in having gas turned off in winter," she said.

She said that it was vital that the Western allies slapped severe sanctions on Russia, but cautioned that they could only be punitive at this stage.

"As a deterrent, they are completely ineffective," she said. "Putin doesn't care what the economic impact is of this invasion. It's not going to stop him from doing what he's planning on doing," she argued.

"At the same time, you have to punish him somehow and if you're not going to fight him with troops, you have to fight him in other ways. Economic levers are all we have. I'm not saying that you shouldn't use them, but I am saying that they are not going to deter him from continuing to invade Ukraine."

Edited by: Hardy Graupner