President Biden’s Treasury Department officials have proposed new actions aimed at crippling a fleet of aging tankers that have defied Western sanctions and helped Russia deliver oil to buyers around the world.
Their efforts, aimed at punishing Russia, have stalled as the White House worries about how it will affect energy prices ahead of the November election.
To drain Russia of the money it needs to continue its war in Ukraine, the U.S. and its allies have imposed penalties and taken other new steps to limit the revenue Moscow gets from selling oil overseas. But Russia is increasingly finding ways around those restrictions, increasing pressure on the Biden administration to step up enforcement.
Treasury officials hope to accomplish that goal by targeting the so-called shadow tanker fleet that allows Russia to sell oil at prices above the $60 a barrel price cap that the United States and its allies imposed in 2022.
The cap is designed to limit Moscow’s ability to profit from energy exports while allowing its oil to continue to flow on international markets to prevent global price shocks. Largely circumvents the capThereby making huge profits to finance its war efforts.
While Treasury officials want to halt the Russian tankers, economic advisers inside the White House worry that such a move could cause a spike in oil prices this summer and push up U.S. gasoline prices, which could hurt Biden’s re-election campaign. They have not signed on to the proposals, even though current and former Treasury officials have presented them with analyses showing the risk of a significant impact on oil markets is low.
The debate reflects the problem at the heart of the U.S. government’s new effort to restrict Russian oil sales: How to weaken Moscow’s war machine without generating a political backlash by inflicting pain on American drivers.
The dispute, a rare public example of divisions within the administration over inflation and Ukraine policy, pitted Treasury officials against aides on the White House National Economic Council, which is led by Lael Brainard.
White House officials privately called the process routine and stressed that no decisions had been made. But the delays have puzzled other administration officials, who have been unable to get straight answers from Brainard and her team about what is holding up the proposed action.
For now, proposed sanctions against Russia’s shadow fleet remain under review and won’t come soon, according to multiple people briefed on the discussions who spoke on the condition of anonymity because they were not authorized to speak publicly.
Brainard declined to speak publicly about the process. White House officials declined to directly answer questions about oil price concerns and the Treasury proposal.
Instead, the White House released a statement from Amos Hochstein, a senior Biden adviser.
“Our enforcement of energy sanctions is focused on imposing costs on Russia, Iran, and other bad actors while preventing energy price spikes that would not only harm American consumers but also increase revenue for the bad actors we seek to hold accountable,” he said.
The White House is facing pressure from inside and outside the administration to do more to enforce the oil price ceiling, which was put in place by Treasury Secretary Janet L. Yellen and her team two years ago in the months following Russia’s invasion of Ukraine.
After the invasion, the United States and Europe moved to ban imports of Russian oil to reduce revenues from one of the world’s largest oil producers. But Yellen and other leaders of wealthy democracies who opposed the Russian invasion realized that a European ban, if fully implemented, could remove millions of barrels of oil from global markets and trigger a price shock that could send U.S. gasoline prices as high as $7 a gallon.
Their alternative plan It is to use the shipping industry, including shipping companies and insurance companies, to effectively allow Russia to sell oil only at a discount: $60 per barrel, about $25 per barrel below the global market price.
So-called price ceiling proof Initial successBut Russia quickly found workarounds, including shipping oil to buyers via a fleet of aging Sovcomflot tankers that had no Western insurance and became known as the Shadow Fleet.
The tanker fleet, along with other forms of marine insurance, allows the Kremlin to continue to reap lucrative revenues from oil exports, thereby financing its war on Ukraine.
Critics of the oil price cap argue that the $60 a barrel limit is too high and that the Biden administration has been too lax in enforcing some aspects of the cap. Some have called on the Treasury Department to impose tighter oil sanctions on Russia, similar to those it has imposed on Iran’s oil industry.
Yellen defended the price caps in an interview with The New York Times last month, arguing that Russia’s efforts to circumvent them would still incur costs and make it more difficult for Russia to sell its oil.
“We’ve got Russia shipping that oil to China and India at very high cost, including buying shadow fleets and providing insurance,” Yellen said. “We still think it’s working.”
Still, current and former Treasury officials want the government to go further and impose specific penalties on the shadow tanker fleet, restricting its sales or forcing it out of service. European officials took action last month Penalizing Russian ships that evade sanctions by delivering liquefied natural gas to the market could complement the U.S. Treasury’s proposal to target oil tankers.
Treasury officials privately produced and released an economic analysis that, based on the history of enforcement actions under price caps, concluded that the proposed shadow fleet penalties were unlikely to squeeze Russian oil out of the market and would instead force Moscow to sell much of its oil at lower prices under the price caps.
Robin Brooks, senior fellow at the Brookings Institution’s Global Economy and Development Program, and Ben Harris, a former senior Treasury official and current vice president and director of the Brookings Institution’s Economic Studies Program A similar analysis was publicly released late last monthThe report said historical evidence suggested moves to shut down shadow tankers were “unlikely to have even a small impact on global oil prices”.
Currently, the shadow fleet consists of about 120 tankers, 20 of which are subject to sanctions. Brooks and Harris wrote that the government may impose penalties on another 100 tankers in batches to minimize price volatility. They cited evidence from past enforcement actions that showed none of them had a significant impact on oil markets.
“While this is far from a causal relationship, we believe it reinforces the view that further sanctions on the Sovcomflot fleet are unlikely to lead to a spike in oil prices,” Brooks and Harris wrote.
White House officials recently said the price caps and their 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 increased discounts on Russian oil,” Daleep Singh, deputy national security adviser for international economic affairs, said at the Brookings Institution in late May. “At the same time, Russian exports have remained high, avoiding the 2022 oil price spike that many had feared.”
