Group of Seven countries will vote against new World Bank projects in Russia to punish Vladimir Putin’s regime, according to three government officials with knowledge of the agreement.

The action, which puts at least $1.5 billion of contemplated World Bank projects in Russia at risk, was decided by deputy finance ministers from the G-7 during a conference call last week, according to two of the officials, who spoke on the condition of anonymity because the call wasn’t public.

The move dovetails with new rounds of sanctions targeting Russia’s banking, energy and defense industries as the U.S. and European Union this week stepped up economic pressure on Russia over its actions in Ukraine. Russia’s finance ministry received no official information, according to its press office.

The World Bank will have trouble getting approval for projects in the face of opposition from the G-7, which has more than 40 percent of votes on the bank’s board, said Scott Morris, a former deputy assistant secretary for development finance and debt at the U.S. Treasury Department.

David Fuller's view

The World Bank will not become engaged in political discussions surrounding Russia and the European Union.  However, Putin has turned Russia into a pariah state, in the eyes of most European leaders.  Sanctions are not a short-term solution but they will hurt over time.  Reprisals by Putin, which have been mentioned by some of his spokesmen, would most likely only harden US and European resolve.  Even if Putin survives the USSR-style series of reprehensible events which led to sanctions, he is finished in terms of ever again being accepted as a credible, trustworthy political leader by the civilised world. 

(See also this week’s earlier comments, including Thursday’s chart review.)