Officials Say US Aims To Cripple Russian Oil Industry

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BERLIN — Current and former US officials say the Biden administration is developing plans to further stifle Russia’s oil revenues, with the long-term goal of destroying the country’s central role in the global energy economy. Political conflict with China, India, Turkey and other countries that buy Russian oil.

Among the proposed measures is imposing a price cap on Russian oil, backed by secondary sanctions that would penalize foreign buyers who do not comply with US restrictions by preventing them from doing business with those of American companies and partner countries.

While President Vladimir V. Putin was waging war in Ukraine, the United States and its allies imposed sanctions on Russia that ravaged its economy. But about $20 billion a month, which Russia continues to collect oil sales According to officials and experts, it could perpetuate some kind of crushing conflict in eastern Ukraine and finance any future aggression.

US officials say the real question now is how to deprive Moscow of that money while ensuring that the global oil supply does not fall. With the US elections approaching, President Biden said that the top priority is to fight inflation.

While US officials say they don’t want to pull large amounts of Russian oil from the market right away, they are trying to force countries to stop importing it in the coming months. The US ban on the sale of critical technologies to Russia is partly aimed at crippling oil companies for many years to come. US officials say the market will eventually adjust as Russian industry weakens.

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. Foreign ministers discussed a possible embargo in Brussels on Monday. A group of 7 industrialized countries, which includes Britain, Japan and Canada, agreed to phase out Russian oil imports this month, and finance ministers will meet this week in Bonn, Germany to discuss the details.

“We strongly support the efforts of Europe, the European Union, to get rid of Russian energy, whether it’s oil or ultimately gas,” Foreign Minister Antony J. Blinken said in a question in Berlin on Sunday. Future energy sanctions at a press conference of the North Atlantic Treaty Organization. “It will not end overnight, but Europe is clearly on track to move decisively in that direction.”

“While this is happening, the United States has taken a number of steps to help,” he added.

But Russia’s oil exports increased in April, and rising prices earned 50 percent more According to a study, this year’s revenues compared to the same period in 2021 new report NATO member India and Turkey increased their purchases from the International Energy Agency in Paris. South Korea buys less, but remains a key customer, like China, which has been critical of US sanctions. The result is a Russian war machine still backed by petrodollars.

U.S. officials said: “Reducing the Kremlin’s revenues from oil sales and sanctions by countries outside the sanctions coalition, such as China and India, were only imposed by Edward Fishman, who oversaw the State Department’s sanctions policy after Russia’s 2014 annexation of Crimea to buy more oil. takes it,” he said.

The Biden administration is examining various types of secondary sanctions and has yet to decide on a definitive action plan, according to officials who spoke on an anonymity basis to discuss policies currently being evaluated internally. The US has imposed secondary sanctions to cut Iran’s exports in order to reduce its nuclear program.

Large foreign companies often follow US regulations to avoid sanctions if they do business with American companies or partner countries.

“If we’re talking about Rubicons to pass, I think the biggest is the secondary enforcement piece,” said Richard Nephew, an academic at Columbia University who was a senior official on sanctions in the Obama and Biden administrations. This means that we say to other countries: If you do business with Russia, you cannot do business with the USA.

But sanctions have a mixed history. Severe economic isolation has done little to change the behavior of governments, from Iran to North Korea to Cuba and Venezuela.

A measure discussed by American officials would require foreign companies to pay a below-market price for Russian oil or face US sanctions. Washington will set a price for Russian oil well below the global market value, which is currently over $100 a barrel. Russia’s latest budget has set a breakeven price of over $40 for its oil. A price cap would reduce Russia’s profits without increasing global energy costs.

The US government could also cut off Russia’s access to oil payments. Washington would do this by issuing regulation requiring foreign banks dealing with payments to put the money in an escrow account if they want to avoid sanctions. Russia would only have access to money to buy essential goods such as food and medicine.

And as these mechanisms came into play, US officials would pressure countries to gradually reduce their purchases of Russian oil, as was the case with Iranian oil.

“Russian oil and gas will not have a ban on its own,” said Maria Snegovaya, a visiting scholar at George Washington University working on sanctions against Russia. “Partly because it causes prices to skyrocket. Russia can benefit from a rapidly rising price.”

However, it can be difficult to enforce escrow payments or ceilings globally. Under the new measures, the United States will have to confront countries that are not part of the current sanctions coalition and that want to maintain good relations with Russia, such as India and China.

Trump administration in 2020 sanctions imposed To 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 a new Russian provocation, such as a chemical weapons attack, or to give Kiev more advantages if Ukraine starts serious negotiations with Moscow.

US officials want to ensure that European and Asian partners remain united with Washington on any new sanctions. But some European officials say some measures, such as price ceilings or tariffs on Russian oil, will be ineffective or too complex to enact.

“We continue to look at these things,” US Treasury Secretary Janet Yellen said in Bonn on Wednesday. “You know, it’s important for Europe to decide what’s best.”

U.S. officials say they are slashing numbers to see how much revenue Russia will be deprived of if big buyers pay only a fraction of the market price for oil.

A US official said Asian and Middle Eastern buyers of Russian oil could insist on paying the same lower price if the European Union decides to impose a price cap on their purchases rather than a direct embargo.

“The advantage of a direct ceiling price is you go to the Chinese or Indians and you say we will force you to save money!” Retired diplomat Daniel Fried, who serves as the State Department’s enforcement policy coordinator, said:

The toughest sanctions ever imposed on Russia by the United States and the European Union have blocked the Russian central bank’s access to foreign currency reserves in global accounts. This led to a decrease in the value of the ruble. But the bank collected foreign currency from Russian companies, which paid in dollars and euros for commodities, including energy.

US and European officials focused the discussion on oil sanctions, leaving out the more thorny question of Russia’s natural gas exports. European countries rely on Russian gas to heat homes and heat businesses, and this gas is not easy to replace.

Chinese state-owned oil companies retreat on signing new oil contracts with Russia, given the uncertainty about the sanctions. American officials say that while China has given Putin diplomatic and rhetorical support, 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. Alexander Gabuev, a senior fellow at the Carnegie Endowment for International Peace, said they also want to avoid secondary sanctions. Chinese companies don’t know much about compliance, so executives tend to be cautious.

US officials are also discussing another way the Biden administration has inflicted pain on Russia: US officials are calling for the legal seizure and restructuring of Russian magnates, as well as Russian central bank assets frozen in accounts overseas during the war. discussing. .

As with the proposed energy sanctions, the United States is exploring this idea with European countries and Group 7 members.

Edward Wong Reported from Berlin, Paris and Washington and Michael Crowley from Washington. Matina Stevis Gridneff Contributed to reports from Brussels.