To Shorten the War in Ukraine, Tighten Oil Sanctions for Real

(Bloomberg Opinion) — As Bloomberg News has reported, President Joe Biden is considering ramping up sanctions on Russia before he leaves office, hoping to pressure Russian President Vladimir Putin ahead of possible talks to end the war in Ukraine. As with previous decisions to loosen restrictions on Kyiv’s use of US weapons, such a shift would be overdue — but welcome nonetheless.

If negotiations to end Putin’s brutal invasion are to take place, then the imperative for Western democracies must be to strengthen Ukraine’s hand first. Outside of greater military support, it would be hard to send a more powerful message of resolve than to squeeze the oil and gas revenue that funded nearly one-third of Russia’s federal budget in 2023.

Russia is arguably the most sanctioned country in the world, with measures hitting everything from transport to finance, energy and technology. It may also now be the most adept at sanctions-busting. Armenia, Georgia, Kazakhstan, Kyrgyzstan and other former Soviet states have seen rocketing trade as trans-shipment hubs for Western luxury goods, from leather handbags to Mercedes-Benz sedans. Meanwhile, China has helped keep the Russian war machine running with raw materials, microchips, drone parts and other dual-use technologies.

Perhaps the most significant failure has been an oil price cap, put in place to curb Putin’s revenue without destabilizing global supply. While the scheme initially worked roughly as designed, limiting sales to less than $60 per barrel, Russia has long since adapted. It has procured access to a “shadow fleet” of hundreds of vessels, which rely on either non-Western suppliers of maritime insurance and other services, or self-declared “attestations” that they are complying with the cap, in order to transport Russian oil.

Attempts to tighten enforcement have either been performative or ineffective. Meanwhile, China, India and Turkey have done a booming business turning that crude into jet fuel and other petroleum products that are then sold legally into the European Union, US and elsewhere.

Sanctioning more shadow tankers should limit the overall number available to Putin. To have a real impact, though, Western countries will have to target buyers, including the refiners buying oil above the price cap and the financial institutions facilitating such purchases.

Conditions are fortuitous: With crude prices hovering around $75 per barrel, any disruption in supplies should be manageable. The bigger challenge will be diplomatic. India, which the US is cultivating as a security partner, already resents having to comply with American sanctions on Iran and other nations, while China has shown itself increasingly willing to retaliate against US strictures. Giving companies and banks, say, a reasonable window to act before suffering secondary sanctions might ease some frictions.

Meanwhile, the EU should standardize enforcement measures, which differ by member state, and ensure that sufficient resources are devoted to the effort. Requiring shipowners to submit more detailed paperwork, with breakdowns for various services, would make it harder to falsify attestations.

Sanctions are nearly always subject to leaks and cheats. Nevertheless, they have raised the costs of war for Putin, whose economy is under serious strain. They also provide Ukraine and Western leaders — including self-avowed dealmaker Donald Trump — some much-needed bargaining power. In what time he has left, Biden should aim to leave his successor as much of that leverage as he can.

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