The Biden administration on Friday targeted the Russian energy sector, including the oil industry, with some of the toughest sanctions to date, aimed at cutting off funding.
The radical measures, taken just over a week before President Joe Biden leaves office, come as President-elect Donald Trump says he is preparing to meet Russian President Vladimir Putin. These measures could also unnerve investors in energy markets.
Senior US administration officials want to leave Kiev – and the incoming Trump administration – with the strongest possible hand for potential negotiations. These same officials expressed hope that the next administration will maintain and enforce the sanctions, despite previous skepticism from some Trump officials about the effectiveness of such measures.
The new sanctions against “the Kremlin’s largest and most important source of revenue” hit hundreds of targets, including two of Russia’s largest oil companies: the joint-stock company Gazprom Neft and Surgutneftegas.
The sanctions also target around 200 oil transport ships, many of which are accused of being part of the so-called “ghost fleet” working to evade sanctions, as well as oil traders and energy sector employees. Russia is also a target for the production and export of liquefied natural gas (LNG).
“We expect our actions to cost Russia more than billions of dollars per month,” a senior Biden administration official told CNN.
The sanctions, introduced in coordination with the United Kingdom, are part of the administration’s broader approach to supporting Kiev. The Biden administration announced on Thursday the last tranche of military aid to Ukraine, valued at around 500 million dollars (roughly the same amount in euros).
“These sanctions, in addition to the measures we have taken in recent weeks, help put Ukraine in a position where it has the ability to work with the new administration to try to find a just peace,” another Biden administration official said.
On Thursday, Trump reiterated his desire to end the war in Ukraine, saying Putin “wants to meet and we are preparing him.”
“President Putin wants to meet – I have already said this publicly – and we have to end this war. It’s a bloody mess,” he said.
The administration’s first senior official acknowledged that it is “entirely up to” the Trump team “to determine whether, when and on what terms they can lift any sanctions that we have put in place.”
Furthermore, the strength of the sanctions will largely depend on enforcement, with one official reminding us that “we have to match each evasion with a countermeasure, and that will require political will.”
“Russia will make every effort to circumvent these sanctions. It’s inevitable,” he explained.
“But evasion is not free. Russia has had a constant need to adapt and reorient its supply chains. This creates inefficiency. It creates uncertainty. Creates complexity. Therefore, our sanctions are like a blow to the wheels of the Russian war machine”, said the two officials interviewed by CNN.
The measures adopted this Friday do not provide for secondary sanctions against specific countries, according to the authorities. China and India have been the main importers of Russian oil during the war in Ukraine.
Officials argued that they waited until the final days of the administration to impose the sanctions, in part because of the state of the global oil market and the potential impact on the U.S. economy.
Russia’s invasion of Ukraine in early 2022 sparked fears of major supply disruptions from one of the world’s leading producers. Oil prices soared to $130 per barrel in March 2022, contributing to the inflation crisis in the US economy and driving gasoline prices to historic highs.
“For much of this war, global supplies were tight and at risk of falling short of demand,” the administration’s first senior official explained, noting that it likely would have increased revenues for Russia ‘while raising prices at the pump for gasoline. for families in the United States and around the world.’
Now, the official said, both the oil markets and the U.S. economy “are in a fundamentally better place.”
The United States is producing more oil than any other nation in world history, forcing OPEC to reduce supply. Oil prices have been relatively subdued, in part due to record US production.
Still, oil prices rose sharply on Friday morning, even before the official sanctions announcement, with some traders blaming rumors of sanctions.
US crude oil jumped 4% to nearly $77 per barrel. Brent oil, the global benchmark, rose 3.7% to around $80 per barrel.
