Officials at President Biden’s Treasury Department have proposed new measures to retire a fleet of aging oil tankers that deliver Russian oil to buyers around the world despite Western sanctions.
Their effort is aimed at punishing Russia, but has stalled amid concerns in the White House about the impact on energy prices ahead of the November elections.
In an effort to squeeze money from Russia to continue its war in Ukraine, the United States and its allies have imposed sanctions and taken other new steps to limit how much Moscow makes from selling oil abroad. But Russia has increasingly found ways to circumvent those limits, mounting pressure on the Biden administration to step up its enforcement efforts.
Treasury officials want to do that in part by cracking down on a so-called shadow fleet of oil tankers that would allow Russia to sell oil above the $60 a barrel price that the United States and its allies have imposed by 2022.
The cap was intended to limit Moscow’s ability to profit from its energy exports while allowing its oil to flow into international markets and prevent a global price shock. But Russia has largely circumvented the cap, allowing it to reap huge profits to fund its war effort.
As Treasury officials seek to take Russian tankers out of service, White House economic advisers worry that the move could drive up oil prices this summer and boost U.S. gasoline prices, hurting Biden’s reelection campaign. They have not yet endorsed the proposals, even as current and former Treasury officials present them with analyses suggesting the risks of a major impact on the oil market are low.
The debate reflects a tension that has always been central to the administration’s new effort to limit Russian oil sales: How to weaken Moscow’s war machine without the political blowback that could come from hurting American motorists?
The dispute is a rare public example of internal government disagreement over inflation and Ukraine policy, pitting Treasury officials against staffers at 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 officials elsewhere in the administration, who have been unable to get a clear answer from Brainard and her team about what is holding up the proposed action.
According to multiple insiders, who spoke on condition of anonymity because they were not authorized to speak publicly, the proposed sanctions against Russia’s shadow fleet are still being reviewed and are not expected to take effect anytime soon.
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 Department’s proposal.
Instead, the White House released a statement from Amos Hochstein, a senior adviser to Biden.
“Our actions to enforce energy sanctions are aimed at imposing a price on Russia, Iran and other bad actors while preventing a spike in energy prices that would not only hurt American consumers but also increase the revenues of the same 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 maintain the oil price cap that was set two years ago by Treasury Secretary Janet L. Yellen and her team in the months after Russia invaded Ukraine.
After the invasion, the United States and Europe moved to ban Russian oil imports in an effort to cut revenues for one of the world’s largest oil producers. But Ms. Yellen and other leaders of wealthy democracies who opposed the Russian invasion realized that the European ban, if fully implemented, risked wiping millions of barrels of oil off the world market — and triggering a price shock that could push gasoline in the United States to as much as $7 a gallon.
Their alternative plan was to use the maritime sector, including shipping companies and insurance companies, to allow Russia to sell oil only at a discount: $60 a barrel, which is about $25 a barrel less than the world market price.
The so-called price ceiling initially proved successful, but Russia soon found workarounds, including delivering oil to buyers via a group of old Sovcomflot tankers, operating without Western insurance and which have come to be known as the Shadow Fleet.
The tanker fleet and alternative forms of maritime insurance allow the Kremlin to continue generating significant revenue from oil exports, which it uses to finance the 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 for tougher Treasury Department 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 efforts to circumvent it still had costs and made it harder 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 shadow fleet and providing insurance,” Ms. Yellen said. “We still think it works.”
However, current and former Treasury officials want the government to go a step further and target the shadow tankers with specific sanctions, which could limit their sale or decommission the vessels. European officials moved last month to punish Russian ships that evade sanctions by transporting liquefied natural gas to market. This effort could be supplemented by the Treasury Department’s proposal for oil tankers.
Treasury officials have privately prepared and distributed an economic analysis. Based on a history of enforcement actions under the price cap, they argue that the proposed shadow fleet sanctions are unlikely to remove Russian oil from the market. Instead, they would force Moscow to sell much of its oil again at lower prices under the price cap.
Robin Brooks, a senior fellow in the Brookings Institution’s Global Economy and Development Program, and former top Treasury official Ben Harris, who is now vice chair and director of Brookings’ Economic Studies Program, released a similar analysis late last monthIt argues that historical evidence suggests that efforts to shut down shadow fleet tankers “are unlikely to have even a modest impact on global oil prices.”
Twenty tankers in the shadow fleet are currently under sanctions, out of a fleet of about 120. Mr Brooks and Mr Harris write that the government could sanction the additional 100 tankers in waves, to minimise price distortions. They map out evidence from past enforcement actions to show that none have had a major impact on the oil market.
“While this is far from causal, we believe it reinforces the notion that further sanctions on the Soviet fleet are unlikely to cause oil price increases,” Brooks and Harris wrote.
White House officials have recently argued that the price cap — and related enforcement measures — have so far been harmful to Russia, but not to American motorists.
“Energy analysts — and even Russian officials themselves — have linked our increased enforcement activity to the widening discount on Russian oil. At the same time, Russian export volumes have remained high, avoiding the price hike many feared in 2022,” Daleep Singh, deputy national security adviser for international economics, told Brookings in late May.
