President Joe Biden and his European allies could take one move to strike at the heart of Russian President Vladimir Putin’s regime and its wealth: Imposing direct sanctions on Russia’s oil and gas industry.
But that move could trigger an energy crisis that cripples their economies, threatens their own grip on power and perhaps even enriches Putin in bigger ways.
The risk of economic and political blowback is stymieing U.S. and European allies hitting Putin with the kinds of restrictions they used on Iran over the past decade. It shows how reliance on oil imports and worries about rising gasoline prices continue to constrain Washington’s action in international crises — even after the U.S. has emerged as an energy powerhouse in its own right and has made progress in moving toward greener sources like wind and solar.
“My administration is using every tool at its disposal to protect American families and businesses from rising prices at the gas pump,” Biden said at a press conference Thursday, adding that his newest sanctions were specifically designed to allow Russian energy payments to continue.
Russia is the world’s third largest oil producer and second largest natural gas producer — the U.S. is No. 1 for both — and those fossil fuels contributed 36 percent of Moscow’s budget in 2021, or $119 billion in revenues. Few people doubt that sanctions choking off that flow might alter Putin’s thinking. But those exports have created a mutual dependency between Moscow and many of its customers, particularly in Europe, that would spread the pain far beyond Russia.
Those economic and political factors have meant that even many of the West’s biggest Russia hawks have offered only muted calls to crimp Russian energy shipments, even as its troops close in around the Ukrainian capital, Kyiv.
How important are Russian oil and gas exports?
The U.S. got just 1 percent of its crude oil in 2020, according to government data, but U.S. oil costs closely track the global benchmark prices, which would soar without Russian supplies. Europe is much more directly dependent, buying 40 percent of its natural gas and a quarter of its crude oil from Russia.
Meanwhile, global energy prices have surged during the past year after the pandemic triggered an economic bust-and-boom cycle for oil and gas sector companies: First, the industry was forced into painful financial belt-tightening as demand sagged — but then faced an explosion as a boom in demand left the market short of supply. That’s been particularly harsh in Europe, where the average household can expect to see its gas and electricity bill rise more than a third this year to $2,100 from 2021.
Americans are feeling that pain in their wallets as well. U.S. gasoline prices are up nearly a $1 a gallon from last year, an increase that has given Republicans an opening to pummel Biden and his climate change policies as a threat to voters’ wallets. The White House has been acutely aware of the political and economic risks from its sanctions.
“We’re not going to do anything which causes an unintended disruption to the flow of energy as a global economic recovery is still underway,” Deputy National Security Advisor Daleep Singh said at the White House on Thursday. “This is the one area where Russia has systemic advantage in the global economy.”
One of the biggest differences in targeting Russia compared with Iran, whose economy all but collapsed under U.S. sanctions during the Obama and Trump eras, is simply the immense scale of Russia’s industry. Russia exported 5 million barrels of oil a day in 2020 — about double Iran’s peak exports before the sanctions were re-imposed by the Trump administration — and it also ships 2 million to 3 million barrels a day of refined petroleum products like diesel, jet fuel and gasoline.