New plan to target Russian oil revenues sparks debate in the White House – The Dean of Guadalajara

New plan to target Russian oil revenues sparks debate in the White House – The Dean of Guadalajara
New plan to target Russian oil revenues sparks debate in the White House – The Dean of Guadalajara

Officials in President Biden’s Treasury Department have proposed new actions aimed at crippling a fleet of aging tankers that are helping deliver Russian oil to buyers around the world in defiance of Western sanctions. Their effort is aimed at punishing Russia but has stalled over White House concerns about how it would affect energy prices ahead of the November election. In an attempt to deprive Russia of the money needed to continue fighting in Ukraine, the United States and its allies have imposed sanctions and taken other novel steps to limit how much Moscow makes selling oil abroad. But Russia has increasingly found ways to skirt those limits, increasing pressure on the Biden administration to step up its enforcement efforts. Treasury officials want to do that, in part, by targeting a so-called ghost fleet of tankers that allows Russia to sell oil above a $60-a-barrel cap imposed by the United States and its allies in 2022. That cap was intended to restrict Moscow’s ability to profit from its energy exports while allowing its oil to continue flowing into international markets to avoid a global price shock. But Russia has largely skirted the cap, allowing it to rake in huge profits to fund its war efforts. While Treasury officials want to take Russian tankers out of service, economic advisers inside the White House fear that could inflame oil prices this summer and drive up U.S. gasoline prices, potentially hurting Mr. Biden’s reelection campaign. They have not given the proposals a green light, even as current and former Treasury officials present them with analyses suggesting the risks of a major effect on the oil market are low. The debate reflects a tension that has always been at the heart of the administration’s novel effort to restrict Russian oil sales: how to weaken Moscow’s war machine without the political backlash that could come from inflicting pain on American drivers. The dispute is a rare public instance of internal disagreement in the administration over inflation and Ukraine policy. It pits Treasury officials against aides at the White House National Economic Council, led by Lael Brainard. White House officials privately describe the process as routine and stress that no decisions have been made. But the delays have baffled officials elsewhere in the administration, who have been unable to get a clear answer from Ms. Brainard and her team about what is holding up the proposed action. For now, according to several people familiar with the discussions, who spoke on condition of anonymity because they were not authorized to speak publicly, the proposed sanctions on the Russian ghost fleet remain under review and are not imminent. Ms. Brainard declined to speak publicly about the process. White House officials declined to answer direct questions about concerns about oil prices and the Treasury proposal. Instead, the White House issued a statement from Amos Hochstein, a senior adviser to Mr. Biden. “Our actions to enforce energy sanctions are focused on making Russia, Iran and other bad actors pay a price, while preventing a surge in the price of energy, which would not only hurt American consumers but increase the revenues of the very bad actors we are trying to hold accountable,” he said. The White House is under pressure from inside and outside the administration to do more to enforce the oil price cap, which Treasury Secretary Janet L. Yellen and her team crafted two years ago in the months after the Russian invasion of Ukraine. After the invasion, the United States and Europe moved to ban imports of Russian oil, in an effort to reduce revenue for one of the world’s largest oil producers. But Ms. Yellen and other leaders of the wealthy democracies opposed to Russia’s encroachment realized that the European ban, when fully implemented, risked removing millions of barrels of oil from the global market and triggering a price shock that could send gasoline to a peak of $7 a gallon in the United States. Their alternative plan was to use the maritime industry, including shipping companies and insurers, to effectively allow Russia to only sell oil at a discount — $60 a barrel, which is about $25 less per barrel than the price on the global market. The so-called price cap proved successful initially, but Russia soon found ways to circumvent it, including delivering oil to buyers via a group of former Sovcomflot tankers, operating without Western insurance, which has come to be known as the ghost fleet. The tanker fleet along with alternative forms of maritime insurance have allowed the Kremlin to continue generating robust revenues from oil exports, helping it finance its war against Ukraine. Critics of the price cap have argued that the $60-a-barrel limit is too high and that the Biden administration has been too lenient in certain aspects of enforcing the cap. Some have called on the Treasury Department to impose stricter oil sanctions on Russia similar to those on Iran’s oil sector. In an interview with The New York Times last month, Ms. Yellen defended the price cap, arguing that Russia’s work to circumvent it still imposed costs and made it difficult for Russia to sell its oil. “We’ve made it very expensive for Russia to ship this oil to China and India in terms of acquiring a ghost fleet and providing insurance,” Ms. Yellen said. “We still believe it’s working.” Current and former Treasury officials, however, want the administration to go further and target ghost fleet tankers with specific sanctions that could restrict their sales or force them out of service. European officials moved last month to penalize Russian ships that evade sanctions by transporting liquefied natural gas to market, an effort that could complement the Treasury proposal for tankers. Treasury officials have produced and privately circulated an economic analysis arguing, based on a history of enforcement actions under the price cap, that the proposed sanctions on the ghost fleet would be unlikely to drive Russian oil off the market and would instead force Moscow to resell much of its oil at lower prices under the cap. Robin Brooks, a senior fellow in the Global Economy and Development program at the Brookings Institution, and former senior Treasury official Ben Harris, who is now vice president and director of the Economic Studies Program at Brookings, published a similar analysis publicly late last month. It argues that historical evidence suggests efforts to shut down ghost fleet tankers are “unlikely to have even a modest impact on global oil prices.” Twenty ghost fleet tankers are currently under sanction, out of a fleet of about 120. Mr. Brooks and Mr. Harris write that the administration could penalize the additional 100 tankers in waves, to minimize price disruptions. They use evidence from past enforcement actions to show that none of them have had much of an impact on the oil market. “While this is far from causal, we believe it validates the notion that further sanctions on the Sovcomflot fleet are unlikely to cause spikes in oil prices,” Mr. Brooks and Mr. Harris write. White House officials have recently argued that the price cap, and related enforcement measures, have so far hurt Russia, but not American drivers. “Energy analysts, and even Russian officials themselves, have linked our increased enforcement activities to the increased discount on Russian oil. At the same time, Russian export volumes have remained high, avoiding the price spike that many feared in 2022,” Daleep Singh, a deputy national security adviser for international economics, told Brookings in late May.

 
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