WASHINGTON (BLOOMBERG) - United States President Joe Biden's debut set of sanctions on Russia over its incursion into disputed Ukrainian territory hit markets not with a bang, but a whimper.
Instead of a sweeping package that crippled top Russian banks, cut its financial transactions off from the global economy, or personally singled out Russian President Vladimir Putin - the US and its allies settled on a modest "first tranche" of penalties. Markets responded with a shrug, underwhelmed by the tit-for-tat approach.
The sanctions targeted a pair of Russian banks, VEB.RF and Promsvyazbank as well as three members of Russia's elite with close ties to the Kremlin. The penalties also sought to freeze future purchases of Russian sovereign debt.
Yet the sanctions hardly amounted to the precedent-shattering, economy-crippling measures the US and its partners long telegraphed if Russian troops rolled across the border.
White House officials spent Tuesday afternoon (Feb 22) trying to defend the measured approach, as questions swirled over whether their response would be enough to deter the Kremlin from mounting a bigger assault. Moscow has denied it plans to invade Ukraine.
Mr Putin said that the crisis could be averted if Ukraine accepted demands that included recognising Russian sovereignty over Crimea and renouncing its bid to join Nato. He said troops would be performing peacekeeping operations in breakaway territories, and that it was impossible to forecast how military operations would develop.
The most consequential move came from Germany, which announced it was halting certification of the Nord Stream 2 pipeline and threw into jeopardy the US$11 billion (S$14.8 billion) project that would have solidified Russia's grip on Europe's energy sector.
Top US diplomat Antony Blinken later announced a summit this week with Russian Foreign Minister Sergei Lavrov was off.
"This was the beginning of an invasion, and this is the beginning of our response," Mr Daleep Singh, the deputy national security adviser for international economics told reporters in Washington.
For Mr Biden, the approach carries geopolitical danger.
Mr Putin has long preyed on disunity and disorganisation in the West as he pursued land grabs closer to home. Under closer inspection, these Western measures might not appear as muscular as they seem on first glance.
One of the banks targeted by the US had been under restrictions since 2014, and the US already had limited prohibitions on Russian sovereign debt in place since 2019. Stocks in Europe recouped losses as investors learnt the details of the penalties, while crude oil futures and the ruble erased declines.
Mr Brian O'Toole, a senior fellow at the Atlantic Council who previously worked in the US Treasury Department's sanctions unit, called Mr Biden's sanctions "incremental".
"We must wait to see if the US will impose the impact they've promised for further aggression and how that is defined," he said. "I fear at the moment that Putin may not think the West has the stomach to follow through."
Mr Biden is also facing intensifying criticism from hawkish lawmakers on both sides of the aisle.
Republicans who encouraged him to impose sanctions before Mr Putin attacked spent Tuesday criticising his actions as ineffectual half-measures, with Senator Lindsey Graham calling the developments "the 1930s all over again".
But the South Carolina Republican was not the only one to raise the spectre of World War II-era appeasement. Allies like Senator Bob Menendez, the New Jersey Democrat who chairs the Foreign Relations Committee, said the US should levy the "overwhelming amount" of sanctions now in order to deter further aggression by Russia.
"I don't know what we need to wait for," Mr Menendez said in an interview with CNN. "What we can't have here is another Munich moment," a reference to a 1938 agreement that allowed Nazi Germany to seize part of Czechoslovakia.
The muted response also leaves Mr Biden vulnerable to criticism that the White House has once again over-promised and under-delivered on the world stage. Earlier this month, his aides publicly insisted they would immediately impose penalties inflicting significant costs on the Russian economy.
"We would not adopt the traditional escalatory ladder that we've used in the past, where we begin with targeted sanctions on government officials, move on to state-owned entities and then the strategic sector," White House aide Peter Harrell told a sanctions conference on Feb 2. "Instead, we expect to adopt a 'start high stay high' approach."
Yet the package unveiled on Tuesday appeared more like the product of a rushed effort after Mr Putin recognised breakaway territories in Ukraine's Donbass region, but stopped short of a full-scale invasion.
The move came as the US was also evaluating an eleventh-hour gambit by French President Emmanuel Macron to broker a summit between Mr Biden and Mr Putin to avert war.
While both the Kremlin and White House signalled they could theoretically see such a conversation happening, the prospect collapsed as quickly as it emerged. The White House formally ruled out the possibility on Tuesday evening.
Both developments complicated US intelligence that officials say show the Russians readying a wide scale assault that would include the seizure of the Ukrainian capital of Kyiv. American officials were so convinced that a broad incursion could be in the works that diplomatic staffers retreated across the border to Poland on Monday night.
Privately, administration officials said they continue to believe Putin is readying such an offensive - and those expecting a more aggressive response sanctions package might not have long to wait.
One person familiar with the administration's thinking said the US still anticipated additional Russian aggression in the next 24 to 48 hours, which would trigger additional sanctions.
In his address announcing the penalties, Biden said it appeared that Putin was laying the groundwork for Russian forces to move into areas now administered by the Ukrainian government - an action a second person familiar with the administration's planning would prompt the president to unleash additional penalties.
Officials also argued that critics were misconstruing how sanctions worked, saying the impact would grow gradually but significantly over time.
Still, the White House publicly insisted that the package it presented was already significant, implemented faster and more aggressively than the response after Putin invaded Crimea during the Obama administration.
'Sharp edge of the pain'
Singh took the unusual step of outlining some of the specific individual measures in the chute were Russia to move further, saying the administration was "ready to press a button to take action on the two largest Russian financial institutions, which collectively hold almost US$750 billion in assets".
Measures being prepared by the White House include actions affecting Sberbank and VTB Bank if an invasion proceeds, as well as export control measures in coordination with a large number of allies and partners.
"Make no mistake, this is only the sharp edge of the pain we can inflict," Singh said.