Fresh US Plan Targeting Russian Oil Revenues

Treasury officials in President Biden’s Treasury Department have proposed new actions to cripple a fleet of aging oil tankers that are helping deliver Russian oil to buyers around the world in defiance of Western sanctions. The effort is aimed at punishing Russia but has stalled amid White House concerns over how it would affect energy prices ahead of the November election. In an attempt to drain Russia of money needed to continue fighting its war in Ukraine, the United States and its allies have imposed penalties and taken other novel steps to limit how much Moscow earns from selling oil abroad. But Russia has increasingly found ways around those limits, raising pressure on the Biden administration to tighten its enforcement efforts.

Treasury officials want to do that, in part by targeting a so-called shadow fleet of oil tankers that is allowing Russia to sell oil above a $60-per-barrel price cap that the United States and its allies imposed in 2022. That cap was intended to restrict Moscow’s ability to profit from its energy exports while allowing its oil to continue flowing on international markets to prevent a global price shock. But Russia has largely circumvented the cap, allowing it to reap huge profits to fund its war efforts.

While Treasury officials want to knock Russian tankers out of commission, economic advisers inside the White House worry that would risk inflaming oil prices this summer and pushing up U.S. gasoline prices, which could hurt Mr. Biden’s re-election campaign. They have not signed off on the proposals, 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 core of the administration’s novel effort to restrict Russian oil sales: How to weaken the Moscow war machine without the political backlash that could come from inflicting pain on American drivers. The dispute is a rare public instance of internal administration disagreement over inflation and Ukraine policy, pitting Treasury officials against aides on the White House National Economic Council, which is led by Lael Brainard.

For now, according to multiple people familiar with the discussions, the proposed penalties on the Russian shadow fleet remain under review, and are not imminent. Critics of the price cap have argued that the $60 per barrel limit is too high and that the Biden administration has been too lenient in certain aspects of enforcing the cap. Some have called for the Treasury Department to impose more stringent oil sanctions on Russia akin to those on Iran’s oil sector.

Despite the US’s stance on the price cap on oil, US President Yellen has defended the cap, stating that Russia’s efforts to circumvent it have still resulted in costs and made it harder for Russia to sell its oil. The US has made it expensive for Russia to ship oil to China and India through acquiring a shadow fleet and providing insurance. However, current and former Treasury officials are now advocating for targeted penalties on shadow fleet tankers, potentially restricting their sales or forcing them out of commission. European officials have also penalized Russian ships evading sanctions by carrying liquefied natural gas to market. Treasury officials have privately produced an economic analysis arguing that the proposed penalties would be unlikely to knock Russian oil off the market and would instead force Moscow back to selling much of its oil for lower prices under the cap.

Twenty shadow-fleet tankers are currently under sanction, out of a fleet of about 120. The administration could penalize the additional 100 tankers in waves to minimize price disruptions. Evidence from previous enforcement actions shows none of them have had large impacts on the oil market. White House officials have argued that the price cap and related enforcement measures have thus far hurt Russia, but not American drivers.