Biden’s, and Europe’s, sanctions avoid touching Putin’s oil wealth — for now
The Biden administration and Western European nations have imposed an array of sanctions against the Putin regime and assorted Russian oligarchs. While the sanctions got off to a laughably slow start, they are quickly gaining some real punch as public opinion — and timid politicians — get behind behind Ukraine.
The more recent batch of sanctions have the potential to smack Russia’s economy very hard:
The U.S., European Union, Canada and U.K. announced new sanctions against Russia, saying they planned to cut some Russian banks off the Swift financial network and would take actions to prevent Russia’s central bank deploying its more than $600 billion in reserves to help Russia’s economy.
The steps against the Russian Central Bank are particularly tough:
According to a senior EU official, the idea would be to prevent it selling its foreign assets for local currency to prop up Russian banks and firms hit by sanctions. That could effectively freeze a large part of Russia’s reserves abroad.
Those reserves—composed of gold, bonds, deposits and securities denominated in foreign currencies—are critical for Russia’s efforts to halt the ruble’s depreciation and slow inflation from the currency’s weakness.
All of this is good stuff — the kind that has, to varying degrees, been applied to rogue states like Iran and Venezuela.
But there’s a big item missing from the list — at least so far: energy.
Providing 27 percent of Europe’s oil, Russia is the dominant supplier. As much as the E.U. has been pushing for electric vehicles, the truth is that only 1 percent of Europe’s passenger vehicles are electric. The E.U. is extremely reliant on Russia’s oil and there’s no reason to believe that will change in the near term.
For anyone speculating that surely the West’s response to the invasion of Ukraine will at least get these numbers trending in the right direction, we need only refer to what happened after Russia’s other recent invasion of Ukraine and illegal annexation of Crimea in 2014. From 2010 to 2021, the E.U. increased its use of Russian natural gas from 44 percent to 48 percent. Between 2014 and 2020, Germany increased its natural gas imports from Russia by a whopping 41 percent, and now Germany gets 66 percent of its natural gas imports from Russia. In effect, Western Europe responded to Russia’s previous expansionism by increasing its reliance on Russian energy.
And it gets much, much worse:
The obvious response would be to start moving away from consumption of Russian energy products, but despite Russia’s aggressive moves—and its attempts to interfere in U.S. elections—one of President Joe Biden’s recent energy moves vis-à-vis Russia was to ask it to increase energy production. The U.S. is the world’s largest producer of oil and natural gas, but one of the first moves by the Biden administration was to put a moratorium on new oil and gas leases for federal lands.
This is not a viewpoint merely held by the current administration. In 2018, Democratic senators requested that former President Donald Trump “leverage [his] personal relationship” to get OPEC and Russia to increase oil production. More recently, Democrats are calling on Biden to limit exports of natural gas in an attempt to stifle domestic price increases.
As Bloomberg’s Javier Blas wrote:
In the 24 hours after Vladimir Putin signed a decree recognizing two breakaway Ukrainian territories, the European Union, the U.K., and the U.S. bought a combined 3.5 million barrels of Russian oil and refined products, worth more than $350 million at current prices. On top of that, the West probably bought another $250 million worth of Russian natural gas, plus tens of millions dollars of aluminum, coal, nickel, titanium, gold and other commodities. In total, the bill likely topped $700 million.
And that’s the way it’s going to be — at least for now. The U.S. and its European allies will continue buying Russian natural resources and Moscow will continue shipping them, despite the biggest political crisis between the former Cold War warriors since the collapse of the Soviet Union in 1991.
To be fair, all of this could change, and Russia’s energy products could be sanctioned, too. Until that happens, however, the West is still not hitting Putin and his band of state-owned enterprises where it counts the most. Every day Russia’s oil and gas exports are exempted from sanctions means the West is enriching the very dictator it seeks to punish.