The Vital Missing Link in the U.S. Sanctions against Russia

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February 27, 2022

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by Suriya Jayanti (Time Magazine) … If this is what we have to work with, let us at least make it truly hurt by including embargoes of Russian energy, too. … Oil prices have insulated Russia from sanctions hits, at least in the short to medium term.

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Yet so far energy sanctions are mostly missing. This is despite the fact that Russia is literally dependent on energy exports. Oil and gas together constituted over 30% of Russian gross domestic product before the 2021 (mostly Russian engineered) energy crisis sent prices soaring. In 2019 oil and gas were together over 60% of Russian exports. It is a gaping hole in the U.S. sanctions package that Russian hydrocarbon exports have not been embargoed. If, as Jason Furman now famously said Russia is little more than a “a big gas station,” then how can the White House not sanction its pump?

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This glaring omission in Biden’s sanctions package could be the consequence of a promise to the countries of Europe, cowering in fear as their dependency on Russian gas renders them impotent to fight back against Russia’s invasion. This is not unreasonable.

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Russia is reciprocally dependent on energy exports, however, giving Europe leverage with which it could partially join a U.S. petroleum embargo. European governments are worried about keeping their countries warm and lit. This is partially a supply issue, but also a question of timing. Europe is moving toward climate friendly fuel sources anyway, but it cannot do so overnight because of restrictions in capital and construction timeframes. Alan Riley argues that at least the capital restriction could be mitigated by a levy on Russian oil imports. Because the European Union imports approximately 600 million barrels of oil per day, an E.U. levy of just €10 per barrel of oil imported from Russia would provide collateral on which to issue a 20-year €400 billion Eurobond. Rather than waiting for the tariffs to accumulate to finance the energy transition, a eurobond could be accomplished very quickly, and the money could be used to secure alternative fuel supplies, build energy transition infrastructure, and build energy resilience. The European Union could wean itself off Russian petroleum imports with money raised off of Russia.

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As long as the payments are processed by non-U.S. banks, it is still completely acceptable for western countries and their companies to do business with, for example, Gazprom and Rosneft. In fact, Javier Blas reported that in just the 24 hours immediately following Putin’s recognition of the so-called People’s Republics of Luhansk and Donetsk the European Union, U.S., and United Kingdom “bought a combined 3.5 million barrels of Russian oil and refined products, worth more than $350 million at current prices,” and “another $250 million worth of Russian natural gas.” Plugging our own sanctions holes is a good place to start making the sanctions package effective.

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What the White House should—and can—do now, is institute a full-spectrum energy export embargo on Russia. … Europe will survive. …

Two months is not enough time to build new LNG terminals or full length pipelines, …. Biofuel infrastructure can be completed in well under a year.

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But Russia’s invasion of Ukraine has already thrown energy markets and prices into turmoil. If the U.S. and its western allies are serious about punishing Russia for its assault on Ukraine, and doing so in a way that has a chance of forcing Putin to compromise, a full-spectrum energy export embargo must be the keystone sanction. The U.S. sanctions package simply is not weaponized without it. It is currently porous and toothless when a full 36% of Russia’s budget in 2021 was from oil and gas.

Other sanctions aim at Russia’s veins; oil and gas blockades cut it off at the artery. READ MORE

Sanctioning Russia, but sparing its energy (Politico’s Morning Energy)

Review of Sanctions and Export Controls Imposed in Response to Russia’s Invasion of Ukraine (FoleyHoag)

Energy on tap in Biden’s first SOTU — SANCTIONS ON SANCTIONS: (Politico’s Morning Energy)

Lawmakers Rally Biden to Cut Off Russian Oil and “Hit Putin Where It Hurts Most” (Bloomberg/Yahoo!)

Ukraine presses Biden, senators to hit Russian energy exports — Andriy Kobolyev’s meetings with lawmakers come after Ukraine Foreign Minister Dmytro Kuleba on Tuesday criticized oil companies that had not yet completely severed ties with Russia. (Politico)

AG GROUPS REACT TO PRESIDENT BIDEN’S STATE OF UNION ADDRESS (Brownfiels Ag News)

Manchin, Murkowski to introduce bipartisan bill to block Russian energy shipments to U.S. — It’s not yet clear whether the bipartisan bill could muster enough support to pass in the Senate. (Politico)

What’s more clear: Halting Russian energy shipments would take supplies off the market, hiking gasoline prices when Biden and Democrats are taking heat for rising consumer costs. (Politico’s Morning Energy)

Bid to ban Russian oil imports gains steam on Capitol Hill — The White House has thrown cold water on the idea, citing prices at the pump. (E&E Daily)

Pelosi favors banning all Russian oil imports into the United States (Yahoo! Money/Fox News)

Exclusive – U.S. Utilities Push White House Not to Sanction Russian Uranium (US News and World Report)

Major oil companies pull out of once-promising Russia (NPR)

A Russian oil and gas embargo is in the cards. And analysts warn it will have huge consequences (CNBC)

OIL EMBARGO STANDOFF: (Politico’s Morning Energy)

How to fight an economic war (Business Green)

Calls for U.S. to ban Russian oil gain momentum despite inflation concerns — An increasing number of Republicans and Democrats are calling for a U.S. import ban to punish President Vladimir Putin (Washington Post)

Amid war, Biden reluctant to unleash clean energy rhetoric: The president has not followed Europe’s calls to produce more renewable energy to weaken Russia’s global influence. (Politico)

White House double take on banning Russian oil (Politico’s Morning Energy)

Lawmakers Push to Ban Russian Oil Imports, Amid White House Resistance — Republicans and Democrats on Capitol Hill are pursuing the ban to punish Russia for its invasion of Ukraine, but the White House is opposed, warning of energy price spikes. (New York Times)

Top Democrats, Republicans say they have deal to ban Russian energy imports as U.S. stock markets sell off sharply — The agreement, reached between leaders on House and Senate tax committees, would still need to be approved by the full House and Senate (Washington Post)

Will war fast-track the energy transition? The sudden push to reduce Europe’s dependence on Russian gas and oil could trigger a paradigm shift to clean energy sources that might be quickly scaled up. (DW.com)

Shell promises to phase out Russian oil, apologizes for past purchases (Washington Post)

Biden’s oil dilemma (Politico’s Morning Energy)

More articles about renewable fuels and Ukraine

Excerpt from Politico’s Morning Energy: This is a critical moment in global energy policy, where the still-evolving response to Russia’s invasion of Ukraine aims to prevent a full blown energy, economic and humanitarian crisis.

So far, Russia’s energy sector has largely been spared from the West’s sanctions, though it is one of the country’s most important industries. Sanctioning Russian energy would impact greater shares of the world’s energy supply than when the U.S. imposed punitive measures on other petrostates like Iran and Venezuela. Russia is the world’s third largest crude producer, providing roughly 10 percent of the world’s oil, and the second largest natural gas producer. Though the Biden administration has been rallying around its rolodex to find energy alternatives for Western Europe from Russian gas, both sides would suffer major losses if they turned off the taps.

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Though the West offered some exemptions to keep global energy markets stable, uncertainty about those exemptions is already leading traders to avoid Russian commodities all together to avoid running afoul of the new rules. BP also announced Sunday that it would drop its nearly 20 percent share in Russian national oil company Rosneft in a massive blow to the country’s oil sector.

While none of these market moves were mandated by Washington or Brussels, they highlight the chilling effect on energy and the delicate balance the West faces to protect markets from getting too spooked. U.S. WTI crude futures shot up when trading opened Sunday night from just under $92 Friday to nearly $99 Sunday.

President Joe Biden has repeatedly said he will do whatever in his power to save Americans from rising prices, and a spike in energy prices goes far beyond just dollars and cents in investor pockets or consumer prices at the pump. The U.S. is already dealing with some of its highest inflation in decades coming out of the pandemic, and higher fuel costs mean higher prices all along the supply chain, leading to food insecurity, economic stagnation, you name it.

Biden entertained the possibility of a third release from the Strategic Petroleum Reserve (which is getting Congressional backing) last week, and said he would be working with other high consuming and producing nations on solutions. But that hasn’t stopped Republicans from cudgeling the president over the specter of rising gas prices. Sen. Rick Scott (R-Fla.) tweeted that Biden’s “radical Green New Deal policies, like killing Keystone XL, have pushed America to a dangerous dependence on Russian & other foreign energy.”

But despite the economic and political risks, the U.S. is by and large in a far better position than Europe, with lower energy prices and dependence on Russian energy. The U.S. gets less than 10 percent of its crude from Russia — a proportion that grew to replace Venezuelan imports now under sanctions, not in response to actions like the shutdown of the never-operational Keystone XL. DWS, a private equity firm with $1 trillion in management, is forecasting oil production in the United States to grow a whopping 800,000 barrels a day this year, higher than what the official U.S. forecasts calls for.

“The amount of oil coming out of the U.S. is going to exceed what people were thinking even a month ago,” DWS commodity portfolio manager Darwei Kung told ME. “Once we start to see more security about supply, it won’t be a surprise to see oil and European natural gas prices reverse.” READ MORE

Excerpt from Politico’s Morning Energy: Canada is outright banning Russia crude imports, which globally make up about a third of Russia’s federal budget revenue. It’s largely a symbolic gesture since U.S. crude imports have essentially replaced Russian crude going to Canada, POLITICO’s Zi-Ann Lum reports.

And back home, Senate Energy Chair Joe Manchin (D-W.Va.) made a similar call, urging “the Administration and industry partners to take action immediately, up to and including banning crude oil imports from Russia.”

Russia is a relatively minor importer of crude into the U.S., though its share increased to account for the loss of sanctioned Venezuelan oil. But Manchin said in a Monday statement that continuing the imports while Russia uses energy to pressure European partners “makes no sense at all and represents a clear and present danger to our nation’s energy security.” Manchin urged greater domestic energy production to protect U.S. energy independence and wean off allies from Russian energy.

The heat is on for American firms to follow their UK counterparts in exiting their Russian holdings. Sen. Kevin Cramer (R-N.D.) tweeted that “It’s time for a patriotic US company to step up and do the same. Invest in clean U.S. oil and gas production.” Senate Energy ranking member John Barrasso (R-Wyo.) hotlined his energy security bill, the Energy Security Cooperation with Allied Partners in Europe Act, which would expedite natural gas export applications for allies in NATO and East Asia and mandate sanctions on anyone involved in constructing or servicing Russian energy infrastructure. READ MORE

Excerpt from Brownfield Ag News: (Renewable Fuels Association CEO, Geoff) Cooper says instead of releasing oil from the strategic reserves, the U.S. should be releasing the productivity and ingenuity of American farmers and ethanol producers. “If you really want to get Putin’s attention, we think you’ve got to put sanctions on his oil and gas exports, right? We get about 600-thousand barrels a day of crude oil and other petroleum products from Russia and that means we’re sending about 60-million dollars per day to a country that is attacking our friends in Ukraine, and we think that’s gotta stop.”

Cooper says the U.S. has 200-thousand barrels per day of ethanol production that is sitting idle right now that could quickly be brought back online to replace imports from Russia. READ MORE

Excerpt from Politico’s Morning Energy: “For the U.S, declaring an embargo on Russian oil is an easy step to take,” Antoine Halff, an adjunct senior research scholar at Columbia University’s Center on Global Energy Policy told ME. “U.S. importers right now are staying away from Russian barrels. It’s happening de-facto anyway.”

Most of what Russia sends to the U.S. is not crude, but rather unfinished oils or heavy oil that refiners use for blending purposes.

Refiners can find substitutes for heavy oil from places like Mexico, Ecuador, and Colombia, according to Ben Cahill, senior fellow at the energy program of the Center for Strategic and International Studies. The White House might have another ace up its sleeve, as reports surfaced this weekend that U.S. officials met with Venezuelan President Nicolás Maduro’s regime in a bid to unlock that country’s heavy, sludgy oil, which has been blocked from Gulf Coast refiners since 2019 by sanctions. The loss of Venezuelan oil is what prompted U.S. refiners to seek alternative products from Russia to begin with.

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It would be an entirely different story if Europe too were to swear off imports of Russian crude ,,,, READ MORE

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