With Election Over, Biden Eyes Parting Blow to Putin War Chest

The Washington Post / Jeff Stein, Ellen Nakashima

17:35 JST, December 25, 2024

President Joe Biden is weighing major new sanctions against Russia’s energy sector in his final weeks in office, four people familiar with the matter said, as the administration considers a parting blow in its financial war against Vladimir Putin.

The move would also give the incoming team of President-elect Donald Trump more leverage in its negotiations with Putin over ending Russia’s war with Ukraine, said the people, who spoke on the condition of anonymity to describe deliberations that aren’t public.

The thrust of the sanctions would be to target the “dark fleet” of international ships carrying Russian oil to non-Western countries as well as certain Russian oil exporters, who have not been sanctioned until now, according to several of the people familiar with the matter. The options also include revoking a license enabling banks to process Russian energy transactions, the people said.

If implemented, the penalties could help shape Biden’s economic and foreign policy legacies before Trump’s inauguration. A major move against Russia before leaving office would bolster Biden’s claims to have rallied Western allies to respond forcefully to the 2022 invasion of Ukraine. He is also set on handing his successor a strong economy – a feat that could be undermined by a sudden energy shock reprising the price spikes earlier in his administration.

In the 2½ years since Russia’s invasion, the White House has been wary of cracking down too hard on Russian energy exports, fearing a sharp rise in global oil prices – and gas prices for U.S. motorists. But inflation has declined dramatically from a few years ago, and the election is over, changing the political calculus. Outside advocates have made the case for Biden to tighten the vise on Russia’s energy sector, and some officials are concerned they are running out of time, the people said. Bloomberg previously reported some of the new sanctions under consideration.

“The Biden administration has been worried about increasing gas prices and worsening inflation. That was the main constraint on their Russia sanctions policy – the domestic ramifications,” said Edward Fishman, senior research scholar at Columbia University’s Center on Global Energy Policy, who has called for Biden to target Russian energy sales in the last weeks of his presidency. “But the election is over, and inflation is under control. The reasons to be this cautious on sanctions don’t apply anymore.”

The United States and its European partners have provided hundreds of billions of dollars in aid to Kyiv, while implementing a range of financial penalties on Russian banks, defense firms, industrial producers and other companies. Those sanctions have hit with increasing force: Annual inflation in Russia is set to soar beyond 9 percent, according to official government data, with a recession possible next year. Russia’s central bank has raised interest rates to 21 percent.

Russia’s energy sector, however, has remained only partially affected, sustaining Putin’s forces on the battlefield while minimizing the economic damage at home. Somewhere between one-third and one-half of Russia’s budget revenue comes from the sale of oil and gas. The Kremlin earned roughly $100 billion from energy sales last year, S&P Global said in a report in January.

“The goal of a new major sanctions action should be a double-digit decline in their export revenue, over a period of six to 12 months,” said Peter Harrell, a former Biden administration senior director for international economics who is now a nonresident fellow at the Carnegie Endowment for International Peace.

Harrell tempered expectations, however. “Even if there is a sizable hit, Russia is going to continue to enjoy substantial export revenue,” he said. “Sanctions are an iterative game where you’re looking to make sequential base hits. Additional energy sanctions could be a solid double.’’

A senior administration official framed the effort as necessary to ensure that Ukraine is in the “best possible position” to defend itself and negotiate peace on “just” terms.

“This action would be another step toward achieving that objective,” the official said, also speaking on the condition of anonymity to discuss the decision.

A Western “price cap,” led by the United States and European allies, has curbed the Kremlin’s energy revenue by setting a maximum price at which participating countries can legally purchase Russian oil. But Russia has continued to find non-Western markets for exports to get around the cap, particularly in China and India.

Global energy markets may now be giving Biden more latitude to tighten that effort. The International Energy Agency said last month that it expects supply to outrun demand next year, as the United States, Canada and other countries ramp up production. Gas prices remain far below their 2022 highs, and few experts believe even a major shock to Russian energy production would send the cost at the pump soaring.

“If [the sanctions package] does result in some Russian barrels coming off the market, there will obviously be a bit of an impact on global price, but I think that’s modest,” said one of the people familiar with the matter, noting the gas price moderation and production increase. “So I think we’re actually at a time when the market could handle energy coming off the market.”

Yet the end of the election may not have freed the president from worrying about gas prices. Biden is widely described by aides as determined to leave the economy in a good place on his way out of office. And both Biden and Trump vowed to crack down on Iran’s oil sales – a double blow that some analysts say could reverse predictions of an energy glut.

“While the softer global fundamentals since a couple years ago leave room for President Biden and President Trump to tighten sanctions on Russia and Iran, that room is not unlimited,” said Bob McNally, founder and president of the Rapidan Energy Group.

As the clock ticks down on Biden’s term, holding Russia to account for its aggression against Ukraine remains a high priority.

“Clearly energy has remained Russia’s biggest revenue source to finance its war,” Harrell said. “And a move to tighten up would be a welcome close to Biden’s sanctions campaign against Russia.”