President Joe Biden’s Treasury Department officials have proposed new actions aimed at weakening a fleet of aging tankers that are defying Western sanctions to help deliver Russian oil to buyers around the world.
Their effort, aimed at punishing Russia, has stalled amid White House concerns about how it will affect energy prices ahead of the November election.
To deplete the funds Russia needs to continue fighting in Ukraine, the United States and its allies have imposed punitive measures and taken other novel measures to limit the revenue Moscow receives 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 do that, in part by targeting the so-called shadow tanker fleet that allows Russia to sell oil above the $60 per barrel price cap set by the United States and its allies in 2022.
The cap is intended to limit Moscow’s ability to profit from energy exports while allowing its oil to continue flowing on international markets to prevent global price shocks. But Russia has largely circumvented this cap, allowing it to reap huge profits to fund its war effort.
While Treasury officials want to take the Russian tankers out of service, economic advisers within the White House worry it could lead to higher oil prices this summer and push up U.S. gasoline prices, potentially hurting Biden’s re-election campaign. They have not yet approved the proposals, despite current and former Treasury officials providing them with analysis showing the risk of a significant impact on oil markets is low.
The debate reflects a tension that has been at the heart of the administration’s new push to limit Russian oil sales: how to cripple Moscow’s war machine without causing a political backlash by inflicting pain on American motorists.
The dispute is a rare public example of disagreement within the government over inflation and Ukraine policy. Treasury officials pitted themselves against aides on the White House National Economic Council, led by Lael Brainard.
White House officials privately described the process as routine and stressed that no decisions had been made. But the delays have confused other government officials, who have been unable to get straight answers from Ms. Brainard and her team about what is holding up the proposed action.
At present, according to multiple people familiar with the matter, the proposed penalties against Russia’s shadow fleet are still under review and will not be implemented immediately.
Ms. Brainard declined to speak publicly 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 Biden senior adviser Amos Hochstein.
“Our actions to enforce energy sanctions are focused on imposing prices on Russia, Iran and other bad actors while preventing energy price spikes that would not only harm American consumers but also increase the revenues of our same bad actors. Trying to hold them accountable, “He said.
The White House faces pressure from inside and outside the administration to do more to enforce the oil price cap, which Treasury Secretary Janet Yellen and her team instituted two years ago in the months following Russia’s invasion of Ukraine .
Following the invasion, the United States and Europe moved to ban imports of Russian oil to reduce revenues for one of the world’s largest oil producers. But Yellen and other leaders of wealthy democracies opposed to Russia’s intrusion realize that a European ban, once fully implemented, could drain millions of barrels of oil from global markets and trigger a price shock that could push gasoline prices as high as $7 a gallon. In the U.S.
Their alternative is 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 global market prices.
The so-called price cap initially proved successful, but Russia soon found solutions – including shipping oil to buyers via a fleet of aging Sovcomflot tankers that operated without Western insurance, which was criticized as Called 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, helping to fund its war against Ukraine.
Critics of price caps argue that the $60 per barrel cap is too high and that the Biden administration has been too lax in some aspects of enforcing the cap. Some have called on the U.S. Treasury Department to impose stricter oil sanctions on Russia, similar to those imposed on Iran’s oil sector.
Yellen defended the price caps in an interview with The New York Times last month, arguing that Russia’s efforts to circumvent them still increased costs and made it more difficult for Russia to sell its oil.
“In terms of buying the shadow fleet and providing insurance, we’re making it very expensive for Russia to ship oil to China and India,” Ms. Yellen said. “We still think it works.”
Still, current and former Treasury officials want the government to take further steps to impose specific penalties on Shadow Fleet tankers, potentially limiting their sales or forcing them to shut down. European officials moved last month to penalize Russian ships that evade sanctions by transporting liquefied natural gas to the market, and the Treasury Department’s tanker proposal could complement that effort.
Treasury officials privately produced and distributed an economic analysis that concluded that, based on the history of enforcement actions under price caps, the proposed Shadow Fleet penalties were unlikely to drive Russian oil from the market and instead force Moscow to re- Take action.
Robin Brooks, a senior fellow in the Global Economics and Development Program at the Brookings Institution, and Ben Harris, a former senior Treasury official and now vice president and director of the Economic Research Program at the Brookings Institution, released similar analyzes publicly late last month. It argued that historical evidence suggests efforts to shut down shadow fleet tankers are “unlikely to have even a minor impact on global oil prices.”
Of the approximately 120 tankers, 20 in the shadow fleet are currently subject to sanctions. They mapped evidence of previous enforcement actions, showing that none of them had a significant impact on oil markets.
“While this is far from causal, we believe it corroborates the view that further sanctions on the Sputnik fleet are unlikely to cause a spike in oil prices,” Brooks and Harris wrote.
White House officials recently argued that price caps 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 increased discounts on Russian oil. At the same time, Russia’s export volumes have remained high, avoiding the price spike that many feared in 2022,” said the head of the International Daleep Singh, deputy national security adviser for economics, told the Brookings Institution in late May.
