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 escalation United States in political conflict with China, India, Turkey and other countries buying Russian oil.
The proposed measures include imposing a price cap on Russian oil, backed by so-called secondary sanctions, which would punish foreign buyers who fail to comply with US restrictions by preventing them from doing business with US companies and those of partner countries.
While President Vladimir V. Putin wages war in Ukraine, the United States and its allies have imposed sanctions on Russia that have affected its economy. But the nearly $20 billion a month that Russia continues to reap from oil sales, officials and experts say could support the kind of lingering conflict in eastern Ukraine and fund future aggression.
US officials say the key question now is how to starve Moscow of that money while also ensuring global oil supplies don’t fall, which could lead to price hikes benefiting Mr Putin and inflation in the United States. and worsen elsewhere. As the US election looms, President Biden has said tackling inflation is a top priority.
While US officials say they don’t want to pull large amounts of Russian oil off the market right away, they are trying to encourage countries to phase out those imports in the coming months. A US ban on the sale of critical technologies to Russia is in part intended to cripple its oil companies for many years. US officials say the market will eventually adjust as Russian industry fades.
The Russian oil industry is already under pressure. The United States banned imports of Russian oil in March and the European Union hopes to announce a similar measure soon. Foreign ministers discussed a possible embargo in Brussels on Monday. The group of 7 industrialized nations, including Britain, Japan and Canada, agreed this month to phase out Russia’s oil imports and their finance ministers are meeting this week in Bonn, Germany to discuss details.
“We strongly support the efforts that Europe, the European Union, is making to forego Russian energy, be it oil or ultimately gas,” said Antony J. Blinken, the state secretary, in Berlin on Sunday when asked about future energy sanctions at a North Atlantic Treaty Organization press conference. “It won’t end overnight, but Europe is clearly on track to head in that direction resolutely.”
“While this is happening, the United States has taken a number of steps to help,” he added.
But Russian oil exports rose in April, and rising prices have seen Russia earn 50 percent more revenue this year than in 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 buys less, but remains a major customer, as does China, which criticizes US sanctions. The result is a Russian war machine that is still powered by petrodollars.
US officials are looking at “what can be done in the shorter term to reduce the revenue the Kremlin generates from oil sales, and ensure that countries outside the sanctions coalition, such as China and India, do not undermine sanctions by simply adding more oil.” buy,” said Edward Fishman, who oversaw the State Department’s sanctions policy after Russia annexed Crimea in 2014.
The Biden administration is looking at various types of secondary sanctions and has yet to agree on a definitive action, according to the officials, who spoke on condition of anonymity to discuss policies still under consideration internally. The United States has imposed secondary sanctions to cut Iran’s exports in an effort to curtail its nuclear program.
Large foreign companies generally follow US regulations to avoid sanctions when they trade with US companies or partner countries.
But sanctions have a mixed record. Severe economic isolation has done little to change the behavior of governments from Iran to North Korea, Cuba and Venezuela.
One measure US officials are discussing is that foreign companies must pay a price below the market price for Russian oil — or face US sanctions. Washington would award a price for Russian oil well below its global market value, which is currently over $100 a barrel. Russia’s latest 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 US government could also cut off most Russian access to payments for oil. Washington would do this by issuing a regulation requiring foreign banks making payments to put the money in an escrow account if they want to avoid sanctions. Russia would only have access to the money to buy essential goods such as food and medicine.
And as those mechanisms are put in place, US officials would urge the countries to gradually reduce their purchases of Russian oil, as they did with Iranian oil.
“There wouldn’t necessarily be a ban on Russian oil and gas,” said Maria Snegovaya, a visiting scientist at George Washington University who has studied sanctions against Russia. “In part this is because the price would skyrocket. Russia can benefit from a sky-high price.”
But enforcing escrow payments or price caps globally can be difficult. With the new measures, the United States should confront countries 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 role in purchasing or transporting Iranian oil.
Experts say the measures could be announced in response to another Russian provocation, such as a chemical weapons attack, or to give Kiev more leverage if Ukraine begins serious negotiations with Moscow.
US officials want to ensure European and Asian partners remain united with Washington on 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 implement.
“We continue to look at those things,” US Treasury Secretary Janet Yellen said in Bonn on Wednesday. “You know, this is important for Europe to decide what they think is best.”
US officials say they’ve crunched numbers to see how much Russia would be revenue-starved if major buyers paid 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 could insist on paying the same low price, a US official said.
“The advantage of a straight price cap is that 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 so far imposed on Russia by the United States and the European Union has blocked the Russian central bank’s access to foreign exchange reserves in global accounts. This led to a decline 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.
US and European officials have focused discussions on oil sanctions, ignoring the thorny issue of Russia’s natural gas exports. European countries rely on Russian gas to heat homes and power companies, and it cannot be easily replaced.
There are signs that major Chinese state oil companies are hesitant to sign new oil contracts with Russia, given the uncertainty over sanctions. US officials say that although China has provided diplomatic and rhetorical support to Mr Putin, Chinese companies and the government have not sent economic or military aid to Russia.
Chinese companies may be waiting for Russian commodity prices to fall further before signing new contracts. And they also want to avoid secondary sanctions, said Alexander Gabuev, a senior fellow with the Carnegie Endowment for International Peace. Chinese companies aren’t well versed in sanctions enforcement, he added, so executives tend to be cautious.
The Biden administration is also discussing another way to hurt Russia: to legally seize Russia’s central bank assets frozen in overseas accounts during the war, as well as those of Russian magnates, and give them to Ukraine for reconstruction. , say US officials. †
As with the proposed energy sanctions, the United States is exploring the idea with European countries and members of the Group of 7.
Edward Wonga reported from Berlin, Paris and Washington, and Michael Crowley from Washington. Matina Stevis-Gridneff contributed report from Brussels.
