When it comes to sanctions against Russia, the West is using an "everything but" strategy — doing all they can to cut the country off from the global economy, while still allowing it to make lucrative energy sales to Europe, Axios' Kate Marino writes.

The big picture: Against that backdrop, a few of the steps the U.S. and Europe took this week are designed to — at least on the margins — blunt Russia's ability to plow energy revenues into funding its conquest of Ukraine.

What's happening: The Treasury Department on Monday said Russia can’t use its dollar reserves, held in U.S. bank accounts, to make payments on its government bonds. Then on Tuesday, the E.U. proposed banning Russian coal imports (though that may not take effect until August).

Let’s break it down. The first action puts to the test Russia’s resolve to not default on its debt in the international markets (more on why Russia might care about that).

• Up until Monday, the Treasury had been allowing Russia to tap those reserves — which the agency had otherwise frozen — if the funds were being used to pay U.S. holders of Russian sovereign debt.
• Now: If Russia wants to avoid a default, it will have to decide between draining its remaining dollar reserves parked elsewhere, or spending new revenue that comes in.

The impact: “This will further deplete the resources Putin is using to continue his war against Ukraine,” a Treasury spokesperson told Axios.

• Those resources are, of course, primarily amassed by selling energy to the world.

On that note … The European Commission proposed that the bloc at the very least stop buying coal from Russia — though oil and gas make up the lion's share of the continent's Russian energy purchases.

• The coal ban would be a small step — worth about €4 billion per year according to Ursula von der Leyen, president of the European Commission.

And the cost of Russia's debt payments due over the rest of this year — about $2 billion — is also not large in the context of the more than $300 billion the country is expected to earn in energy sales.

• "But it's a way to at least eat away at the profits that they're taking in," from selling oil and gas, says George Catrambone, head of Americas trading at DWS Group.

What to watch: French President Macron said this week he's open to cutting off oil sales from Russia, a move that would echo recent U.S. and United Kingdom decisions. But European heavyweights like Germany remain staunchly opposed to banning Russian natural gas, which amounts to about 40% of the continent's supply, as Reuters reported.

The bottom line: When it comes to effectively sanctioning Russia, the West’s big problem is it can’t quit Russian energy.

The prospect for a Russian bond default is back on after the Treasury blocked Russia from accessing funds to use for interest payments (as detailed above), Kate writes.

The big picture: The timing of the Treasury's decision — on Monday — is likely no coincidence, says George Catrambone, of DWS. Russia had bond payments due that day, and it doesn't have another one until May 27.

• In the meantime, on May 25 a special Treasury license expires, which currently allows U.S. bondholders to receive interest payments from Russia. The Treasury Department may, or may not, decide to extend that license.

State of play: Russia appears to have made Monday's payments in rubles after U.S. banks wouldn't process its dollar payments, Bloomberg reported.

• That puts it closer to default status as the bonds require interest to be paid in dollars. There's a 30-day grace period in which it can still make good on the payments.

The big question now is how far Russia will go to stay out of default, Catrambone says. A few scenarios could play out:

• The Russian Finance Ministry could employ the “well, we tried to pay… " defense — but that probably won't prevent global financial institutions from considering it a default (and bondholders don't have great options in a default situation).
• Russia could get creative, and attempt to have a third party make the payments in dollars on its behalf, Catrambone says.
• Or it could just bite the bullet and siphon funds from its non-U.S. reserves.

The bottom line: The Russian Finance Ministry has some decisions to make. Choosing default would make an eventual path back into the global financial system even more complicated than it already is.

🛢 Shell raises write-down for Russia to as much as $5 billion. (Reuters)

📝 Elon Musk was late in filing a form with SEC, and that may have earned him $156 million. (Washington Post)

After months of moving gingerly to withdraw monetary stimulus, the Federal Reserve's tightening campaign now looks set to enter a rapid new phase, Axios' Neil Irwin writes.

• That's the conclusion to draw from new minutes the central bank released Wednesday that spell out the Fed's plans. It aims to shrink its $9 trillion balance sheet nearly twice as fast as it did the last time it undertook "quantitative tightening" — while simultaneously raising short-term interest rates more quickly.

Why it matters: The trillions of dollars the Fed pumped into the financial markets through the pandemic lifted asset prices of all types.

• Its plans to reverse that process are part of a double-barreled tightening campaign, likely to begin in less than four weeks, that could have unpredictable effects across markets.

Make no mistake as to what is being described here. The Fed will soon be sucking up to $1.14 trillion a year out of the financial system. At the same time, it will be steadily raising short-term interest rates, including, the minutes also strongly suggest, by half a percentage point at some meetings.

• Put together, that is a more rapid tightening of monetary policy than has been seen since the Paul Volcker era in the early 1980s. Of course, inflation is also the highest it has been since then, so, maybe that's not too surprising.

The bottom line: The Fed has faced accusations of being behind the curve on tightening the money supply for months. Now we're going to find out what happens as it tries to catch up.

Go deeper.

Another day, another drop. Stocks slipped again yesterday, Matt writes.

• The S&P 500 fell 1% and is down 6.6% from its peak.
• The Nasdaq fared worse, dropping more than 2.2%, down 13.5% from its high.

Yes, but: It's still been a whomping good time for the stock market over the last couple of years.

Context: Just a few weeks ago — March 23 — the market commemorated the two-year anniversary of the COVID-19 panic bottom.

• The S&P 500 had soared over 99% from March 23, 2020. Investors hadn't enjoyed a ride like that since the postwar boom years of the mid-1950s.
• Even after the recent stock market stumble, the benchmark index is still up a tidy 68% over the last two years.

The bottom line: Markets go up and down. While we're riding the escalator lower, keep the big picture in mind.