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With record pump prices, Biden hard-pressed to ramp up Russia sanctions

Commodities Jun 17, 2022 12:11PM ET
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3/3 © Reuters. FILE PHOTO: A well head and drilling rig in the Yarakta oilfield, owned by Irkutsk Oil Company (INK), in the Irkutsk region, Russia, March 11, 2019. REUTERS/Vasily Fedosenko/File Photo 2/3
 
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By Timothy Gardner

WASHINGTON (Reuters) - As the Biden administration contemplates expanding punitive measures on Russia for its invasion of Ukraine, a big hurdle lies closer to home: the American consumer.

U.S. drivers are embarking on summer vacations with gasoline prices averaging more than $5 a gallon for the first time ever. And rising oil and natural gas prices are helping to boost inflation to the highest level in four decades, driving up prices for food, electricity and housing.

Tougher sanctions on Russia, among the world's biggest oil and gas suppliers, would likely only make that worse.

"It's like kicking them while they're down," said Ellen Wald, an energy historian and a senior fellow at the Atlantic Council think tank, said about the prospect of actions that could make prices higher for U.S. fuel consumers.

The United States and Europe have already imposed a raft of measures targeting Russia's oil exports, the lifeblood of its economy and its war machine, including export controls, a U.S. ban on Russian energy imports, a partial EU ban on energy imports.

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

Some officials believe price caps are among several methods that could deepen Russia's economic pain without spiking global oil markets further because only the revenues would be cut, not volumes of oil going to market.

"What is happening is less about how much Russian oil is going off the market, and more about Russia’s declining oil profits as result of being forced to sell at steep discounts," a State Department spokesperson told Reuters.

But stepping up economic warfare actions on Russia without boosting prices will not be easy.

Russia, for example, could retaliate by holding oil from the market. That could immediately drive prices higher as the world's oil producers have very little spare capacity after years of under-investment in oilfields and refineries.

"Every time there is talk about sanctions, the price goes up," said Wald.

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

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

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

Western sanctions are expected to steadily cut into 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 discounting its prices. India, for example, last month nearly tripled its Russian crude purchases, while China has also picked up more Russian barrels.

And in May, Russia's oil revenues rose as higher global prices and steady crude exports outweighed those discounts, the IEA said.

India's purchases have been on Washington's radar for months, with a U.S. official warning in March it could be exposed to "great risk" of stepped up sanctions if it purchases oil significantly beyond levels of previous years.

PRICE CAP MANIPULATION RISK

Besides price caps, the United States may also consider sanctions on entities that provide insurance or services to Russian cargoes, where transactions exceed a set price per barrel.

But enforcement of such measures would take time and resources.

"I don't think that's realistic," said Pavel Molchanov, a managing director at Raymond James investment bank in Houston. "Oil is an extremely liquid and competitive market and there is no practical way of enforcing any type of price limit up, or down."

Richard Nephew, a former sanctions official at the U.S. State Department under President Joe Biden and former President Barack Obama, was dubious about both methods, particularly about price caps, which have never been tried before on a producer of Russia's size.

"The price cap is so at risk of being manipulated, and how do you verify that system?" Nephew said.

Instead, he believes Washington could work with banks in other consuming countries to put Russia's revenue from oil sales into escrow accounts, money that Russia could only tap for approved goods and services.

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

A Rasmussen poll last month found that 83% of likely U.S. voters believe inflation will be an important issue in the elections in which Republicans hope to gain majorities in one or both chambers of Congress.

High fuel prices could cut appetite for aggressive action in Europe as well.

In light of soaring fuel costs, ClearView Energy Partners, a nonpartisan research group, said in a note to clients it is "skeptical that trans-Atlantic allies have sufficient political will to imminently cohere around 'secondary' sanctions on Russian petroleum exports."

(The story corrects analyst's last name in paragraph 22 to Molchanov.)

With record pump prices, Biden hard-pressed to ramp up Russia sanctions
 

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Comments (8)
Me comment
Me comment Jun 17, 2022 8:42PM ET
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sounds fishy very smelly fishy as gas prices are up yet oil, gasoline and distilliate inventories are all at or near their pre-pandemic levels. If oil and gas were so "in short supply" inventories would be falling fast. The refiners and middlement along with big oil are making boatloads of money off the stupidity of the consumer who put up with this speculatve rhetoric without demanding action against the oil companies, refiners and othe middlemen
Red Riley
Red Riley Jun 17, 2022 8:29PM ET
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clueless
Abc Xyz
Abc Xyz Jun 17, 2022 5:41PM ET
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Do something constructive for US, old fuoOol !!
Suresh Patel
Suresh Patel Jun 17, 2022 2:56PM ET
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After Biden administration performance, president Trump was really good. Hope 2024 will be comeback
Brad Albright
Brad Albright Jun 17, 2022 2:56PM ET
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Are you paying attention? Trump tried to overthrow the government. He is going to jail.
Eagle Gon
Eagle_PT Jun 17, 2022 2:27PM ET
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breaking Putin is in coma after checking the oil price 🤣
Jay Garrelts
Jay Garrelts Jun 17, 2022 12:23PM ET
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Roses are red violets are blue Donald Trump and Joe Biden created 8 trillion dollars for you
Trumpster Rocks
Trumpster Rocks Jun 17, 2022 12:23PM ET
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Mostly joe and big O
jason xx
jason xx Jun 17, 2022 5:08AM ET
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Just fight! Break Russia's back on the battlefields of Ukraine
Brad Albright
Brad Albright Jun 17, 2022 5:08AM ET
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He doesn't have to. 15,000 Russian soldiers dead in vane. Russia will fail. Slava Ukraini!
Tyrone Jackson
Tyrone Jackson Jun 17, 2022 2:37AM ET
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I remember the liberals had a fit because Trump put a very small tarrif on Chinese goods . I mean the media and Karen’s had a heart attack. Now Biden basically stops new oil production here. And out laws all Russian energy products. Just really putting the screws to everyone on the planet. 1.75 gas is Now 5.00 usd GAS. Fools and their voting decisions - LONG WTI SINCE THE DAY HE TOOK OFFICE. Thank you for the new Ram 3500 turbo. Now go fill up knowing you voted for the socialist
jason xx
jason xx Jun 17, 2022 2:37AM ET
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Lmao you brag about voting for a lying degenerate ID. IO T? To bad he got voted out maybe he could have launched missles at the federal reserve and Mexico.
taylor jason
taylor jason Jun 17, 2022 2:37AM ET
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socialist has nothing to do with it. more so, it's the God awful policy choices that he made. you would think someone that has spent their entire life in politics would understand how policy works
Trumpster Rocks
Trumpster Rocks Jun 17, 2022 2:37AM ET
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taylor jason It's all on purpose from your party of Communist! Is that a better picture for you ?
Brad Albright
Brad Albright Jun 17, 2022 2:37AM ET
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Biden did not outlaw oil production, liar. Trump is going to jail and Putin is on a highway to h e ll.
 
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