Officials at President Biden’s Treasury Department have proposed new actions aimed at crippling the fleet of aging oil 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 been stalled because of White House concerns about the impact it would have on energy prices ahead of the November election.
In an effort to cut off Russia from the money it needs to continue its fight in Ukraine, the United States and its allies have imposed fines and taken other new steps to limit Moscow’s income from selling oil abroad. But Russia has increasingly found ways around those limits, increasing pressure on the Biden administration to toughen its enforcement efforts.
Treasury officials want to do that, in part, by targeting the so-called shadow fleet of oil tankers that is allowing Russia to sell oil above the $60 a barrel price ceiling that the United States and its allies imposed through 2022.
The cap was intended to limit Moscow's ability to profit from energy exports while allowing oil to continue to flow to international markets to prevent a global price shock. But Russia has Limits largely circumventedThis allowed him to make huge profits to fund his war efforts.
While Treasury officials want to take the Russian tankers out of operation, economic advisers inside the White House worry that it would risk a surge in oil prices this summer and send U.S. gasoline prices higher, which could hurt Mr. Biden’s reelection campaign. He has not signed off on the proposals, even though current and former Treasury officials presented him with analysis that suggests the risks of a major impact on the oil market are low.
The debate reflects a tension that has always been at the core of the administration’s new effort to restrict Russian oil sales: how to weaken Moscow’s war machine without sparking the political backlash that comes from hurting American drivers.
The dispute is a rare public example of internal administration disagreement over inflation and Ukraine policy. It pits Treasury officials against colleagues on the White House National Economic Council, led by Lael Brainard.
White House officials privately describe the process as routine and insist that no decisions have been made. But the delays have confused other officials in the administration, who have been unable to get straight answers from Ms. Brainard and her team about what is holding up the proposed action.
For now, the proposed penalties on the Russian shadow fleet are under review and are not likely to happen immediately, according to several people familiar with the discussions who spoke on condition of anonymity because they were not allowed to speak publicly.
Ms. Brainard declined to speak on the record about the process. White House officials declined to answer direct questions about oil price concerns and the Treasury proposal.
Instead, the White House released a statement from Amos Hochstein, a senior adviser to Mr. Biden.
“Our actions to enforce energy sanctions are focused on imposing costs on Russia, Iran, and other bad actors while preventing increases in energy prices that would not only harm American consumers but also increase revenues for 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 ceiling that Treasury Secretary Janet L. Yellen and her team crafted after Russia invaded Ukraine two years ago.
After the invasion, the United States and Europe moved to ban imports of Russian oil in an effort to reduce the revenues of one of the world’s biggest oil producers. But Ms. Yellen and other leaders of wealthy democracies opposed to Russia’s invasion realized that the European sanctions, when fully implemented, risked taking millions of barrels of oil out of the global market — and triggering a price spike that could push the price of gasoline in the United States to $7 a gallon.
His alternate plan It was intended to use the maritime industry, including shipping companies and insurance companies, to effectively allow Russia to sell oil only at a discount: $60 a barrel, about $25 a barrel below the global market price.
The so-called price ceiling proved to be Initially successfulBut Russia soon found a workaround — including delivering oil to buyers via a group of older Sovcomflot tankers operating without Western insurance, known as the shadow fleet.
Fleets of tankers, as well as alternative forms of marine insurance, have helped the Kremlin earn strong revenues from oil exports, helping it finance its war against Ukraine.
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 some aspects of enforcing the cap. Some have called on the Treasury Department to impose even more stringent oil sanctions on Russia, similar to those imposed 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 efforts to circumvent it were raising costs and making it harder for Russia to sell its oil.
“We have made it very expensive for Russia to ship this oil to China and India, in terms of acquiring the shadow fleet and providing insurance,” Ms. Yellen said. “We still think it’s working.”
Still, current and former Treasury officials want the administration to go a step further, and impose special penalties on shadow fleet tankers, restricting their sale or forcing them out of service. European officials took office last month Penalizing Russian ships that carry liquefied natural gas to market while evading sanctions, an effort that could be complemented by Treasury's proposal for oil tankers.
Treasury officials have privately prepared and circulated an economic analysis that, based on the history of enforcement actions under price caps, says the proposed shadow-fleet penalties are unlikely to drive Russian oil out of the market and would instead force Moscow to sell most 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 Ben Harris, a former top Treasury official who is now vice president and director of the Economic Studies Program at Brookings, A similar analysis was released publicly late last monthIt argues that historical evidence shows that efforts to shut down shadow-fleet tankers are “unlikely to have even a marginal impact on global oil prices.”
Twenty shadow-fleet tankers are currently subject to sanctions out of a fleet of 120 tankers. Mr. Brooks and Mr. Harris write that the administration could also ban an additional 100 tankers to minimize price disruptions. They present evidence from past enforcement actions that suggests none of them have had a major impact on the oil market.
“While this is not causal, we believe it reinforces the notion that further restrictions on the Sovcomflot fleet are unlikely to boost oil prices,” Mr. Brooks and Mr. Harris write.
White House officials have argued recently that the price cap — and related enforcement measures — have so far harmed Russia but not American drivers.
“Energy analysts — and even Russian officials themselves — have linked our increased enforcement activities to increased discounts on Russian oil. At the same time, Russian export volumes have remained high, avoiding the surge in prices in 2022 that many had feared,” Dalip Singh, deputy national security adviser for international economics, said at Brookings in late May.