May 19, 2022, 5:00 a.m. ETMay 19, 2022, 5:00 a.m. ET
Edward Wong and Michael Crowley
Gazprom Neft’s oil refinery in Moscow. New restrictions on Russian energy sales have greater potential for long-term damage to the country’s economy.
BERLIN — The Biden administration is developing plans to further choke Russia’s oil revenues with the long-term goal of destroying the country’s central role in the global energy economy, current and former U.S. officials say, a major escalatory step that could put the United States in political conflict with China, India, Turkey and other nations that buy Russian oil.
The proposed measures include imposing a price cap on Russian oil, backed by so-called secondary sanctions, which would punish foreign buyers that do not comply with U.S. restrictions by blocking them from doing business with American companies and those of partner nations.
As President Vladimir V. Putin wages war in Ukraine, the United States and its allies have imposed sanctions on Russia that have battered its economy. But the nearly $20 billion per month that Russia continues to reap from oil sales could sustain the sort of grinding conflict underway in eastern Ukraine and finance any future aggressions, according to officials and experts.
U.S. officials say the main question now is how to starve Moscow of that money while ensuring that global oil supplies do not drop, which could lead to a rise in prices that benefits Mr. Putin and worsens inflation in the United States and elsewhere. As U.S. elections loom, President Biden has said a top priority is dealing with inflation.
While U.S. officials say they do not want to immediately take large amounts of Russian oil off the market, they are trying to push countries to wean themselves off those imports in the coming months. A U.S. ban on sales of critical technologies to Russia is partly aimed at crippling its oil companies over many years. U.S. officials say the market will eventually adjust as the Russian industry fades.
Russia’s oil industry is already under pressure. The United States banned Russian oil imports in March, and the European Union hopes to announce a similar measure soon. Its foreign ministers discussed a potential embargo in Brussels on Monday. The Group of 7 industrialized nations, which includes Britain, Japan and Canada, agreed this month to gradually phase out Russian oil imports and their finance ministers are meeting in Bonn, Germany, this week to discuss details.
“We very much support the efforts that Europe, the European Union, is making to wean itself off of Russian energy, whether that’s oil or ultimately gas,” Antony J. Blinken, the secretary of state, said in Berlin on Sunday when asked about future energy sanctions at a news conference of the North Atlantic Treaty Organization. “It’s not going to end overnight, but Europe is clearly on track to move decisively in that direction.”
“As this is happening, the United States has taken a number of steps to help,” he added.
But Russian oil exports increased in April, and soaring prices mean that Russia has earned 50 percent more in revenues this year compared to the same period in 2021, according to a new report from the International Energy Agency in Paris. India and Turkey, a NATO member, have increased their purchases. South Korea is buying less but remains a major customer, as does China, which criticizes U.S. sanctions. The result is a Russian war machine still powered by petrodollars.
American officials are looking at “what can be done in the more immediate term to reduce the revenues that the Kremlin is generating from selling oil, and make sure countries outside the sanctions coalition, like China and India, don’t undercut the sanctions by just buying more oil,” said Edward Fishman, who oversaw sanctions policy at the State Department after Russia annexed Crimea in 2014.
ImageAs President Vladimir V. Putin of Russia wages war in Ukraine, the United States and its allies have imposed a range of sanctions that have battered the Russian economy.Credit…David Guttenfelder for The New York Times
The Biden administration is looking at various types of secondary sanctions and has yet to settle on a definite course of action, according to the officials, who spoke on the condition of anonymity to discuss policies still under internal consideration. The United States imposed secondary sanctions to cut off Iran’s exports in an effort to curtail its nuclear program.
Large foreign companies generally comply with U.S. regulations to avoid sanctions if they engage in commerce with American companies or partner nations.
“If we’re talking about Rubicons to cross, I think the biggest one is the secondary sanctions piece,” said Richard Nephew, a scholar at Columbia University who was a senior official on sanctions in the Obama and Biden administrations. “That means we tell other countries: If you do business with Russia, you can’t do business with the U.S.”
But sanctions have a mixed record. Severe economic isolation has done little to change the behavior of governments from Iran to North Korea to Cuba and Venezuela.
One measure American officials are discussing would require foreign companies to pay a below-market price for Russian oil — or suffer U.S. sanctions. Washington would assign a price for Russian oil that is well under the global market value, which is currently more than $100 per barrel. Russia’s last budget set a break-even price for its oil above $40. A price cap would reduce Russia’s profits without increasing global energy costs.
The U.S. government could also cut off most Russian access to payments for oil. Washington would do this by issuing a regulation that requires foreign banks dealing in payments to put the money in an escrow account if they want to avoid sanctions. Russia would be able to access the money only to purchase essential goods like food and medicine.
And as those mechanisms are put in place, U.S. officials would press nations to gradually decrease their purchases of Russian oil, as they did with Iranian oil.
“There wouldn’t be a ban on Russian oil and gas per se,” said Maria Snegovaya, a visiting scholar at George Washington University who has studied sanctions on Russia. “Partly this is because that would send the price skyrocketing. Russia can benefit from a skyrocketing price.”
But enforcing escrow payments or price caps globally could be difficult. Under the new measures, the United States would have to confront nations that are not part of the existing sanctions coalition and, like India and China, want to maintain good relations with Russia.
In 2020, the Trump administration imposed sanctions on companies in China, Vietnam and the United Arab Emirates for their roles in the purchase or transport of Iranian oil.
ImageA U.S.-led assault on Russia’s oil revenues would widen America’s role in the conflict.Credit…Alexey Malgavko/Reuters
Experts say the measures could be announced in response to a new Russian provocation, such as a chemical weapons attack, or to give Kyiv more leverage if Ukraine starts serious negotiations with Moscow.
Russia-Ukraine War: Key Developments
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In Mariupol. The bloodiest battle of the war in Ukraine ended in Mariupol, as the Ukrainian military ordered fighters holed up at a steel plant in the city to surrender. Russia said that nearly 1,000 Ukrainian fighters are in Kremlin custody, though their fate remains uncertain.
War crimes trial. A Russian soldier pleaded guilty in a Kyiv court to having shot a civilian. This is the first trial Ukraine has conducted for an act that could be considered a war crime since Russia launched its invasion.
NATO’s expansion. Finland and Sweden formally asked to join NATO, in potentially the alliance’s biggest expansion in two decades. But Turkey, a NATO member, blocked an initial effort to move ahead quickly with their applications, according to a senior diplomat.
U.S. officials want to ensure that European and Asian partners remain united with Washington on any new sanctions. But some European officials say certain measures, such as a price cap or tariffs on Russian oil, would be ineffective or too complicated to enact.
“We continue to look at those things,” Janet Yellen, the U.S. treasury secretary, said in Bonn on Wednesday. “You know, this is important for Europe to decide what they think is best.”
American officials say they have crunched numbers to see to what extent Russia would be starved of revenues if major buyers paid only a fraction of the market price for oil.
If the European Union decides to impose a price cap on their purchases rather than an outright embargo, Asian and Middle Eastern buyers of Russian oil might insist on paying the same low price, a U.S. official said.
“The advantage of a straight price cap is you go to the Chinese or the Indians and you say, we’re going to force you to save money!” said Daniel Fried, a retired diplomat who has served as the State Department’s coordinator for sanctions policy.
The toughest sanction imposed by the United States and European Union on Russia so far has blocked the Russian central bank’s access to foreign currency reserves in global accounts. That led to a plummet in the value of the ruble. But the bank has amassed foreign currency from Russian companies that are paid in dollars and euros for commodities, including energy.
U.S. and European officials have focused discussions on oil sanctions, leaving out the thornier question of Russian natural gas exports. European nations rely on Russian gas to heat homes and power businesses, and it cannot be easily replaced.
There are signs that large Chinese state-owned oil companies are holding back on signing new oil contracts with Russia, given the uncertainty over sanctions. American officials say that while China has given diplomatic and rhetorical support to Mr. Putin, Chinese companies and the government have not sent economic or military aid to Russia.
Chinese companies might be waiting until Russian commodity prices fall further before signing new contracts. And they also want to avoid secondary sanctions, said Alexander Gabuev, a senior fellow at the Carnegie Endowment for International Peace. Chinese companies are not well versed in sanctions compliance, he added, so the executives tend to err on the side of caution.
The Biden administration is also discussing another way to inflict pain on Russia: legally seizing the Russian central bank assets that were frozen in accounts overseas during the war, as well as those of Russian tycoons, and giving them to Ukraine for reconstruction, U.S. officials say.
As with the proposed energy sanctions, the United States is exploring the idea with European nations and members of the Group of 7.
Edward Wong reported from Berlin, Paris and Washington, and Michael Crowley from Washington. Matina Stevis-Gridneff contributed reporting from Brussels.
Source: nytimes.com
