After Russia’s invasion in Ukraine, Biden justified his decision to keep access to Russian energy to “limit the pain the American people feel at the gas pump.” However, some analysts, lawmakers, and academics argue that the exclusion of an industry at heart of Russia’s economy effectively limits sanctions and could encourage Vladimir Putin to become president.
Adam Tooze, a Columbia University historian and expert on European finance and politics, stated that energy exports are “the whole game.” The United States and Europe have chosen to “carve the one sector that could really be decisive.” Russia doesn’t seem to be blind to the situation and this must indicate that the West is not ready to fight a hard battle over Ukraine.
Biden announced on Thursday sanctions targeting Russian banks and its elites. They also restrict the export of critical technologies, which are crucial for military and economic development. On Saturday, the U.S. and its European allies stepped up sanctions by announcing plans for the freezing of Russia’s central banks and the blocking of certain financial institutions from SWIFT messaging systems for international payments.
The Treasury Department rules allow Russian energy transactions through banks not sanctioned by the U.S. to continue. Administration officials emphasize that the sanctions were designed to minimize disruptions to global energy markets.
U.S. crude oil prices ended Friday at just $92 per barrel. This is the same price they were before Russia invaded Ukraine. AAA reports that gasoline prices are still higher than 33% compared to last year, to $3.57 per gallon on average.
The inflation, which reached a 40-year high and was fueled in large parts by gasoline prices has hurt Biden’s political standing with voters heading into November’s elections.
The sanctions could have created a compromise for the president between his domestic and international political interests. Russia’s invasion of Ukraine has potentially contributed to the supply chain problems, inflation, and other weaknesses that have been a critical weakness for Biden. He now tries to find a balance between punishing Putin and protecting American voters.
Biden specifically referred to the Russian energy carve outs as a virtue, because they would protect American families and businesses against higher prices.
He said, “Our sanctions package was specifically designed to allow energy payments continue.”
These domestic politics, which are also applicable to many European leaders, produced a set sanctions that Sen. Pat Toomey (R-Pa.) said on Thursday he fears will not be enough to deter Putin’s further aggression.
Toomey stated that the administration deliberately left Russia’s largest industry virtually unaffected by its sanctions. The sanctions on Russian banks are welcome but may not be sufficient to isolate the Russian financial sector from international activity. The U.S. should therefore impose severe sanctions on Russia’s oil-and-gas sector.
Biden must also consider the European allies he has to support. One-third of Europe’s fossil fuel consumption comes from Russia, which supplies natural gas. The United States officials believe that limiting Russia’s second-largest oil exporter and largest natural gas exporter could harm the unity necessary to face Putin.
This dependence on Russia could help limit the possible devastation caused by sanctions.
In an email statement, Mark Finley, a Rice University fellow in global oil at the Baker Institute for Public Policy, stated that Russia would be more affected if the energy sector were included in the sanctions. “Oil royalties and taxes account for approximately 40% of Russian federal government revenue.”
Finley pointed out that Russia relies on oil and natural gas revenues to increase its foreign reserves over $600 billion in recent years, specifically to protect itself against financial sanctions. However, this financial cushion could be put at risk by the additional European and U.S. sanctions.
The U.S. seems unable to increase oil and natural gases production quickly if Russia loses oil. OPEC plus countries have not publicly committed to significantly more production.
Jen Snyder, Enverus’ managing director, stated that domestic oil and gas companies face tight supply issues when it comes to rigs, truckers, sand and laborers required to drill for oil. One supplier stated that its most efficient and modern rigs were all under contract through the end.
Snyder said that “all these constraints can be overcome, but it takes some time.”
The European natural gas supply has been very limited. The U.S. gas producers are unable to quickly export more gas into global markets. This is because natural gas must be converted to liquefied natural gases at LNG export facilities before it can be shipped overseas.
The sanctions imposed on Russia’s 2014 invasion in the Crimean Peninsula, Ukraine, forced the country’s elites to adapt. Many of their assets were transferred into new shell entities that had a clean track record. These strategies are being tested, even though oil access has always been an advantage that countries in similar situations have used in the past with Russia’s support.
Marshall Billingslea who set the sanctions policy for Trump’s administration stated that Putin’s government helped other U.S. enemies like Iran and Venezuela to bypass Washington’s control.
Billingslea stated that sanctions enforcement is inherently a game of cat and mouse and that they have had eight years to create alternative mechanisms to keep hard currencies flowing to the regime.
