Global dependence on Russian energy is an obstacle to US pressure campaign on Putin

The global dependence on Russian oil and natural gas is a major obstacle to President BidenJoe BidenTrump tears Biden apart as he heads into 2024 campaign. and Western allies as they try to increase economic pressure on the president Vladimir PoutineVladimir Vladimirovich PutinCyber ​​officials urge federal agencies to guard against possible Russian attacks Rick Scott: Putin, a ‘murderous rogue,’ ‘will keep trying to gobble up more and more territory” MORE.

The United States and the EU are reluctant to target Russia’s energy sector and drive up oil and gas prices after months of rising consumer costs. The dynamic gives Putin significant leverage and could undermine unity between the United States and its European allies in how they respond to his invasion of Ukraine.

Biden and European leaders imposed tough new sanctions on Russian banks, state-owned companies and business leaders close to Putin — and announced sanctions on Putin himself on Friday. But Western allies have avoided taking steps that could disrupt access to Russian oil and natural gas. With fossil fuels accounting for more than half of total US imports from Russia, President Biden said on Thursday the country would avoid sanctioning them.

“In our sanctions package, we specifically designed to allow energy payments to continue,” he said.

Russia is the world’s third largest producer of oil, behind the United States and Saudi Arabia, and the second largest producer of natural gas, behind only the United States. Petroleum and mineral fuels, such as petroleum, coal and natural gas, make up the majority of its exports. . While oil is a global commodity, the natural gas market is more localized, meaning Europe and Asia are its largest markets.

“Energy sanctions that directly targeted Russian crude or product exports – they would hit the Russian economy harder than any other measure, but they also pose the most risk to global energy markets,” Ben said. Cahill, senior fellow at the Center for Strategic and International Studies Program on Energy Security and Climate Change.

Asked at an oil press briefing on Thursday, Daleep Singh, White House deputy national security adviser for the international economy, said the administration did not want to disrupt the energy market at this time. Stadium.

“When it comes to energy, that’s the only area where Russia has systemic importance in the global economy,” Singh said. “We are not going to do anything that unintentionally disrupts the flow of energy while the global economic recovery is still underway.”

As a net exporter of oil and natural gas with a strong strategic reserve, the United States has more flexibility to manage rising prices than its European allies, who could face severe energy shortages if the Russia was reducing its supply. Sanctions against Russia’s energy sector could also backfire if Russia can offset lower sales with higher prices.

“Russia is notorious for using energy as a weapon to curb exports, sometimes under the guise of extra maintenance or other issues,” said Rachel Ziemba, founder of macroeconomic consultancy firm Ziemba Insights.

“Even to the extent that Europe and the United States have said, ‘Well, we don’t want to impact or hinder domestic energy trade too much in the short term,’ we don’t know. exactly what the Russian entities will do.”

But, since oil is a global commodity, less Russian oil availability could impact US prices.

“I think that’s why the Biden administration and especially the Europeans are reluctant to impose direct sanctions on the oil sector, because it’s somewhat counterproductive because you end up hurting European and American consumers and businesses. “There’s not enough spare capacity or strategic reserves or alternative supplies to provide a medium-term alternative to this Russian oil,” said Robert Johnston, senior associate fellow at the Center for Global Energy Policy at the United States. Columbia University.

And, the issue is politically difficult for the Biden administration, as Republicans have repeatedly criticized him for high gas prices, even as presidents have limited impact on its cost.

Putin has promised unprecedented “consequences” for nations that try to obstruct Russia’s invasion of Ukraine, and Biden and his European allies face a serious domestic backlash if the sanctions cause a massive energy shock. U.S. gasoline prices rose 40% year-over-year in January and a global supply disruption would fuel inflation even further, especially if the U.S. and Europe rely more on US energy sources.

“Vladimir Putin realizes what we all know, which is that a good portion of the allies in Europe are heavily dependent on Russian oil and natural gas. Even if we impose these huge sanctions, they are only sustainable for the American allies for a while,” said Jamil Jaffer, founder and executive director of the National Security Institute at George Mason University.

With Biden crippled by Putin’s influence over the energy sector, the United States has increased pressure on Russia through its own power over the global financial system.

The Treasury Department on Thursday announced new sanctions aimed at limiting Russia’s financial sector and its ability to raise funds in global markets, including tough restrictions on major Russian banks with limited exclusions for energy transactions and humanitarian aid.

The new sanctions prevent any US-based financial firm from processing payments and transactions for Sverbank, thereby preventing Russia’s largest financial institution from accessing the US dollar. The Treasury Department also blocked all business with VTB Bank, the country’s second-largest financial company, along with its subsidiaries and three other Russian banks.

More than a dozen Russian state-owned companies and wealthy business leaders have also been locked out of the US financial system, days after Biden banned all purchases or sales of Russian debt by US companies.

The sanctions not only prevent Russian companies from doing most business in the United States, but also make it nearly impossible to conduct transactions in US dollars. About 80% of the $46 billion in foreign transactions processed daily by Russian banks use US dollars, according to the Treasury Department.

The financial sanctions imposed so far have already shaken the Russian economy and markets. Russian stocks crashed earlier this week, borrowing costs soared and the value of the Russian ruble fell to its lowest level in history – to be worth just over a US penny.

“This is not the outcome we wanted,” the White House press secretary said Jen PsakiJen PsakiUS and NATO Seek to Bolster Defenses as Russian-Ukrainian Conflict Rags Sunday shows preview: Russia invades Ukraine; Biden nominates Jackson to the Supreme Court in Europe to welcome a wave of Ukrainian refugees MORE during a Thursday briefing.

“This is both a tragedy for the Ukrainian people and a very raw matter for the Russian people. But Putin’s war of choice demanded that we do as we said and ensure that it would be a strategic failure.

And although oil was left out, some noted that sanctions against the financial sector could have indirect impacts on the country’s energy sector.

“If you look at the price of the Urals blend, which is the main export blend that goes to Europe from Russia, the Urals blend is already trading at a big differential…buyers are very wary,” he said. Cahill.

“Sanctions on companies and asset freezes, they lead to a lot of nervousness among people in the global system,” he added. “You could say that even if the sanctions are not really aimed at Russian crude… they are already having an impact.”

Even so, sanctions experts are skeptical that the high cost of current sanctions will be enough to curb Putin’s belligerence.

Ziemba said that although the sanctions imposed on Thursday are a “significant escalation”, Putin and his inner circle still have some leeway around the sanctions, even if most of the Russian population does not.

“Will this pain and tension be enough to bring about a change in policy? That we don’t know and given the events of the past few days I’m a bit skeptical,” she said.

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