Analysis: With record pump prices, Biden struggles to tighten Russia sanctions

WASHINGTON, June 17 (Reuters) – As the Biden administration considers extending punitive measures to Russia for its invasion of Ukraine, a major obstacle looms closer to home: the American consumer.

American drivers go on summer vacation with gas prices averaging above $5 a gallon for the very first time. And rising oil and natural gas prices are helping push inflation to its highest level in four decades, driving up the prices of food, electricity and housing.

Tougher sanctions against Russia, one of the world’s largest suppliers of oil and gas, would likely only make the situation worse.

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“It’s like kicking them while they’re down,” said Ellen Wald, an energy historian and senior fellow at the Atlantic Council think tank, of the prospect of actions that could raise prices for US fuel consumers.

The US and Europe have already imposed a series of measures targeting Russia’s oil exports, the cornerstone of its economy and war machine, including export controls, a US import ban Russian energy company, a partial EU ban on energy imports.

But the Biden administration is also considering a so-called secondary sanction to increase the pressure. U.S. officials, for example, are in talks with European and Asian allies about imposing potential price caps on Russian oil purchases, Deputy Treasury Secretary Wally Adeyemo said Tuesday. Read more

Some officials believe price caps are among several methods that could deepen Russia’s economic woes without driving global oil markets higher, as only revenues would be reduced, not the volumes of oil brought to market.

“What’s happening is less about the amount of Russian oil coming off the market and more about falling oil profits from Russia, which has been forced to sell at very cheap prices,” a State Department spokesperson said. at Reuters.

But stepping up economic warfare actions against Russia without raising prices will not be easy.

Russia, for example, could retaliate by withholding oil from the market. This could immediately push prices higher, as global oil producers have very little spare capacity after years of underinvestment in oil fields and refineries.

“Every time we talk about sanctions, the price goes up,” Wald said.

In late May, for example, global benchmark Brent hit two-month highs of nearly $124 a barrel after the European Union backed a watered-down embargo on oil shipments from Russia.

Officials from the Treasury Department, which administers the sanctions, and the White House National Security Council did not immediately respond to a request for comment.

When asked when secondary sanctions could be imposed on Russian oil purchases and under what circumstances, a US official said nothing had been decided.

Western sanctions are expected to steadily reduce Russia’s crude exports next year, according to the International Energy Agency (IEA).

But so far, Russia has been able to find new buyers by cutting prices. India, for example, nearly tripled its purchases of Russian crude last month, while China also bought more Russian barrels. read more read more

And in May, Russia’s oil revenues rose as higher world prices and steady crude exports offset those discounts, the IEA said. Read more

India’s purchases have been on Washington’s radar for months, with an official US warning in March it could be at ‘great risk’ of tougher sanctions if it buys oil well above trade levels. previous years. Read more


In addition to price caps, the United States may also consider sanctions against entities that provide insurance or services to Russian cargoes, when transactions exceed a set price per barrel.

But implementing such measures would take time and resources.

“I don’t think that’s realistic,” said Pavel Molchanov, managing director of investment bank Raymond James in Houston. “Oil is an extremely liquid and competitive market and there is no practical way to impose any price limit up or down.”

Richard Nephew, a former US State Department sanctions official under President Joe Biden and former President Barack Obama, was dubious about both methods, especially price caps, which had never been tried before on a producer the size of Russia.

“The price cap is so susceptible to manipulation, and how do you verify this system?” said the nephew.

Instead, he thinks Washington could work with banks in other consumer nations to put the proceeds from Russia’s oil sales in escrow accounts, money that Russia could only mine for goods. and approved services.

But high fuel prices and the inflation it helps fuel are a vulnerability for Biden and his fellow Democrats as the Nov. 8 election nears.

A Rasmussen poll last month found that 83% of likely U.S. voters believe inflation will be a significant issue in elections in which Republicans hope to secure majorities in one or both houses of Congress.

High fuel prices could also reduce the appetite for aggressive action in Europe.

In light of soaring fuel prices, ClearView Energy Partners, a nonpartisan research group, said in a note to clients that it was “skeptical that the transatlantic allies have sufficient political will to come to terms in a meaningful way.” looming around “secondary” sanctions on Russian oil exports.

(This story corrects analyst’s last name in paragraph 22 to Molchanov)

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Reporting by Timothy Gardner; edited by Richard Valdmanis and Marguerita Choy

Our standards: The Thomson Reuters Trust Principles.

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