US Out of Options to Increase Russian Sanctions

The United States will struggle to follow through on threats to impose deeper sanctions on the Russian energy sector, as European fears over collateral economic damage leave President Barack Obama’s administration with diminished options.

Energy is the economic lifeblood of Russia, which vies with the United States and Saudi Arabia to be the world’s top oil producer, and the sector is the main target of Western sanctions over Moscow’s role in the conflict in Ukraine.

But current sanctions have already hit the easiest targets in Russia’s high-tech exploration projects in the Arctic, Siberian shale, and deep-sea. That leaves the United States with less palatable options, such as trying to target the country’s oil exports, as it has done with Iran.

Even though global oil prices have dropped by roughly half since last year, the United States’ European allies remain skittish over any damaging repercussions on energy supplies.

Russia could respond by squeezing the gas exports on which Europe relies heavily.

“If you start playing around with oil prices, Russia is going to play around with gas, and there’s no way Europe is going to go along with it,” said Carlos Pascual, who until last August was the top energy diplomat at the U.S. State Department.

The current top U.S. diplomat on energy issues, Amos Hochstein, says Washington has not exhausted its sanctions toolkit should Russian President Vladimir Putin expand the war in Ukraine. And Treasury Secretary Jack Lew said last week that the administration is ready to “increase the costs” on Russia if it breaks the terms of a ceasefire. 

via Reuters

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza