Dear Readers, We deeply regret having been offline for several days due to a technical issue that has now been resolved. We are still facing some minor issues that we hope will not interfere with the quality of the information provided. 
To inflict maximum economic pain on Putin, eliminate his petroleum from global markets.
By Frank Fannon
As Vladimir Putin’s troops trample Ukraine, the West must inflict maximum economic pain on Russia. That means going after energy. Yet not all energy is the same. Although Russian energy exports represent about 60% of the country’s revenue, natural gas makes up less than 10% of that and oil and refined products roughly 90%.
Before the invasion, the U.S. focused its energy sanctions on Nord Stream 2, a natural-gas pipeline that gave Mr. Putin geopolitical leverage over dependent countries. But almost two weeks into the assault on Ukraine, we must consider sanctions under an entirely new war paradigm. Members of Congress have introduced legislation to ban Russian oil imports, reasoning that Americans shouldn’t help underwrite Mr. Putin’s war crimes. On Tuesday, President Biden said the U.S. will ban imports of Russian oil. But like presidents before him, he seems wary of actions that could increase prices at the pump. The administration could strike a balance of causing real pain in Russia while mitigating harm at home if it incorporates lessons from recent history.
As assistant secretary of state for energy resources, I led energy sanctions on Iran, Russia, North Korea and Venezuela. Executing such sanctions requires the clear capability to impose them—and communicating that capability to the intended target and other parties that could be affected. Just as important is demonstrating a commitment to follow through. In 2018 Iran, like Russia, was using oil revenue to fund malign activities around the world and stir political instability in its region. The Trump administration’s decision to withdraw from the Iran nuclear agreement and impose oil sanctions on the regime caused considerable market uncertainty.
At the time, analysts warned that exiting the deal would cause oil prices—then roughly $70 a barrel—to jump by $30 or more. In addition, the administration sought to deprive Venezuelan dictator Nicolás Maduro from using oil revenue to quash democracy. We demonstrated our capability to impose sanctions, communicated our resolve, and ultimately eliminated more than three million barrels a day from world markets while minimizing economic harm to American consumers or our friends around the globe. These sanctions were phased in between August 2018 and May 2019 and remain on the books to this day. Oil prices didn’t surge, nor did U.S. drivers see prices spike at the pump from the sanctions.
To accomplish this, we relied in large part on diplomacy. Iran presented a threat to the U.S., Israel and neighboring Arab oil-producing nations. We developed our Iran policy in partnership with Saudi Arabia, Kuwait, the United Arab Emirates, and other nations willing to boost production to offset sanctioned barrels. Next, we engaged with a diverse group of countries, including China, Turkey, and India that imported Iranian oil and helped them find alternative sources of supply. Recognizing the private sector’s role in America’s energy security, we could reasonably anticipate how the industry would react to market conditions.
The political, market and security context today has changed from 2018. Yet the Biden administration could deprive the Putin regime of oil revenue by taking three steps. First, engage with Gulf oil-producing nations to encourage them to increase production as they did against Iran. This will be a challenge. According to media reports, the U.S. administration has chilly relations with Saudi Arabia and the United Arab Emirates, among others. These countries often view energy as part of the broader bilateral relationship. They may be willing to take action on energy if they feel the U.S. is committed to working with them on other areas of shared interest from defense to commerce. President Biden’s potential trip to Saudi Arabia this spring is a positive first step.
Second, the administration has, according to some industry leaders, demonized America’s oil companies. Although the International Energy Agency acknowledges that oil and gas will be a pillar of world energy for decades, the Biden administration has suggested that the U.S. oil industry is at odds with a low-carbon future. This narrative, coupled with increased regulation, implies that the U.S. oil industry has no terminal value. In other words, companies are undervalued and underfunded today because the market perceives that the industry won’t exist at some point in the foreseeable future. To arrest this trend and harness American energy as a diplomatic tool, the administration could publicly recognize the importance of the industry and how it complements an agenda to limit climate change.
Third, U.S. politicians must understand that banning America from importing Russian oil would do little to curb lining Mr. Putin’s pockets. If we don’t buy those discounted barrels, someone else will. As in the case of Iran, the U.S. must subject Russian oil to comprehensive sanctions. This will take time—perhaps years. Energy sanctions should target the aggressor and minimize pain on others. Failure to do so would undermine compliance.
Russia itself is inflicting untold human suffering on a peaceful Ukraine and shaking the global community. By eliminating Russian oil from global markets, America can transform #StandingWithUkraine from a slogan into a powerful diplomatic tool.
____________________________________________
Mr. Fannon served as assistant secretary of state for energy resources, 2018-21. He is managing director of Fannon Global Advisors. Energiesnet.com does not necessarily share these views.
Editor’s Note: This article was originally published by The Wall Street Journal-WSJ on March 08, 2022. EnergiesNet.com reproduces this article in the interest of our readers. All comments posted and published on EnergiesNet.com, do not reflect either for or against the opinion expressed in the comment as an endorsement of EnergiesNet.com or Petroleumworld.
Use Notice: This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of issues of socially, environmental and humanitarian significance. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml.
EnergiesNet.com 03 09 2022
