To Deter Russia, Hit Them Where It Hurts
On Thursday April 15, President Biden imposed long-awaited sanctions on Russia, blaming the Kremlin for the SolarWinds hack that breached U.S. government agencies and American companies. The sanctions are aimed at Russia’s disinformation efforts and the occupation of Crimea, along with its recent military buildup and exercises on the Ukraine border. Ten Russian diplomats were expelled as a result.
However, past rounds of sanctions have failed to deter Russia’s increasingly aggressive stance on Ukraine, as illustrated by the Russian navy’s recent closure of the Sea of Azov and parts of the Black Sea under the guise of military exercises — all in violation of international law. US State Department spokesperson Ned Price called Russia’s actions “yet another unprovoked escalation in Moscow’s ongoing campaign to undermine and destabilize Ukraine”.
While Russia announced the end to maneuvers that brought over 100,000 troops along the Ukraine borders and produced a war scare, it may choose to amass troops and threaten its neighbor there again if the political situation changes. It is possible Russia began its troop drawdown in anticipation of the NATO summit in June, where Moscow’s neighborhood belligerence and global cyberattacks will be a main topic on the agenda. In the announcement, the NATO Secretary General called the summit “a unique opportunity to reinforce NATO as the enduring embodiment of the bond between Europe and North America”.
Russia has responded to President Biden’s sanctions with the Russian Foreign Ministry’s spokeswoman, Maria Zakharova, saying that “such aggressive behavior will of course receive a decisive response. In Washington, they should know there will be a cost for the degradation of bilateral relations.” President Biden previously called Vladimir Putin a “killer”, and the White House has spoken out against the treatment of Russian activist Alexei Navalny. MORE FOR YOUChina Blinks As American, Philippine Fleets Challenge Possible Reef SeizureWhat’s The Matter With Germany?In ‘PennEast’ Case, SCOTUS Will Decide The Future Of America’s Pipeline Development
It seems that Biden and Putin are willing to work together on one agenda: tackling climate change. At the recent White House-initiated climate summit, Putin said that “Russia is genuinely interested in galvanizing international cooperation so as to look further for effective solutions to climate change as well as to all other vital challenges,” and Biden responded on Friday that he was “very heartened by [Putin’s] call yesterday for the world to collaborate” and that “the United States looks forward to working with Russia and other countries in that endeavor”.
The situation is far from resolved, however. Vladimir Putin is proposing a “Yalta-2” conference of the U.N. Security Council permanent members (P-5), including China, U.S., U.K., and France, to agree on new rules of the road for global security. If Putin does not get what he wants, it is more than likely that Russian troops will be back. Putin knows well that the mere threat of military conflict can be a valuable bargaining chip. But such a move from Moscow would require a different, harder-hitting punishment from the U.S. and her European allies: energy sanctions.
Prohibitions on Russia’s oil and gas sector — the beating heart of the economy — could prove devastating enough to force Putin to reconsider. Restrictions on technology sales necessary for hydrocarbon exploration and production, tariffs or full embargoes on oil and gas exports, along with fines or asset freezes of Russian financial companies, institutions, and instruments could achieve this goal.
Russia is one of the world’s largest producers of crude oil and dry natural gas. It is a massive source of hydrocarbons trailing only the U.S. and often neck in neck with Saudi Arabia. Russian exports of crude oil were over 70 billion USD in 2020, and oil and gas revenues accounted for 36% of Russia’s federal budget revenues in 2018. The Russian oil and gas sector heavily depends on Europe as a market as well; in 2018, 60% of Russia’s crude oil exports and 75% of their natural gas exports went to Europe.
While Moscow is more than happy to expel American diplomats and bar U.S. officials from entering the country in retaliation to Biden’s expulsions of the Russian intelligence officers, the hydrocarbon-focused economic sanctions would hit Russia where it hurts.
Previously, US sanctions on Russia’s energy sector have included prohibitions on providing and exporting goods, services, or technology that support exploration or production of offshore or shale productions that could potentially produce oil in Russia, and have targeted Russian companies such as Gazprom, Lukoil, Surgutneftegaz, Rosneft, and subsidiaries owned 50 percent or more by those companies.
A new sanctions policy regime could target global oil traders using U.S. international regulatory, compliance, and financial power, and offering support to European allies in a united front against Russia. The United States can also ramp up its sanctioning of Russian E&P and petrochemical companies who import U.S. technology, or technological components based on U.S. patents. It could also severely limit investment in the Russian oil, gas, LNG and petrochemical industries. A future war in Ukraine would become a losing proposition under such policy package.
Under such sanctions, third party companies which export geophysics/ prospecting, drilling, and petrochemical industry tech to Russia may lose American markets, finance, and export licenses. As Europe relies heavily on Russian gas imports, for sanctions to be at their most effective would require solidarity between Europe and the United States at a level that is currently absent.
The current sanctions regime is not enough to influence Russia’s behavior, as recent Russian cyberhacking, aggression near the Ukrainian border, and in the Black and Azov Sea have shown. Russia’s treatment of the Alexey Navalny, the previously poisoned regime opponent, has caused an international outcry. Further sanctions would be a drastic measure in response to a drastic challenge, but as Russia grows bolder, all tools in the policy makers’ toolbox should be at ready, including a major package of energy industry sanctions.