Today, the United States imposed the most significant sanctions yet on Russia’s energy sector, by far the largest source of revenue for Putin’s war. These sanctions will hit hard across every key node of Russia’s oil production and distribution chain, including against two of the four largest Russian oil producers, dozens of oilfield service providers, traders of Russian oil across the world, over 150 vessels moving seaborne Russian oil, and an oil terminal that knowingly received sanctioned oil from sanctioned vessels. The U.S. Department of the Treasury also announced it will rescind a provision that previously exempted the intermediation of energy payments from our sanctions on Russian banks. These measures will collectively drain billions of dollars per month from the Kremlin’s war chest and, in doing so, intensify the costs and risks for Moscow to continue its senseless war.
Some will ask why we waiting for the end of the Administration to introduce sanctions on Russian oil. It’s a fair question. The answer is this: for sanctions to be successful, they must be sustainable. That doesn’t mean they should be costless – sanctions never are – but to succeed they must impact the target more than they damage the U.S. and global economy. Until recently, we were constrained by tight supply in global energy markets, which meant that reducing Russia’s oil exports to the world would likely push up Putin’s export revenues while raising prices at the gas pump for families in the United States and across the world. That’s why we unveiled a novel “price cap” in December 2022 to limit the price that Russia receives for its oil sales while keeping steady the global supply of energy. Oil markets are now in a fundamentally better place. Forecasters expect the global supply of energy to exceed global demand through this year, with ample capacity within and outside of OPEC+ to increase production if necessary. Since the start of Russia’s war, benchmark oil prices have fallen almost $35 per barrel and average U.S. gasoline prices have dropped from roughly $4 to just over $3 per gallon. The moment was ripe for us to adjust our strategy, and the President took action.
Today’s actions build on recent steps that reinforce an economic trajectory along which Russia will face hard choices. Last November, President Biden levied our harshest financial sanctions against more than 50 Russian banks, including Gazprombank, the Kremlin’s key financial conduit to the global energy market. Nearly all of Russia’s biggest banks with major connections abroad are now sanctioned by the United States. The impact was immediate and broad-based: Russia’s currency, the ruble, sank to its weakest level since the first weeks of the invasion, alongside a spike in borrowing costs that may unleash a wave of corporate bankruptcies and default. Landing a direct hit on the Russian energy sector will aggravate pressures on Russia’s wartime economy that have already pushed up inflation to almost 10 percent, and which the Russian central bank has failed to stem with strict capital controls and record-high interest rates over 20 percent.
Looking ahead, Russia’s economic outlook is bleak. Sanctions have sapped the most essential sources of Russia’s economic vitality. But don’t take our word for it. More than a thousand multinational companies have quit Russia. More than a million of Russia’s own people have fled. It has been shut out of global financial markets. It has been cut off from cutting-edge technology. Most of its largest energy customers are gone. With less capital, less technology, and less talent, the endgame facing Moscow is further descent into a smaller, weaker, and isolated pariah state.
As the costs on Russia intensify, we’ve also taken recent action to reduce Ukraine’s vulnerabilities. This includes backstopping Ukraine with economic support – and not just from our taxpayers, but also by making Russia pay. Shortly after Russia’s invasion in 2022, G7 leaders acted in lockstep to immobilize over $300 billion of Russian central bank assets held in our respective jurisdictions. Last June, President Biden and G7 leaders committed to issue $50 billion in loans for Ukraine that will be paid back by the interest earned on the frozen Russian assets. It was an historic step: never before has a multilateral coalition frozen the assets of an aggressor country, and then harnessed the value to fund the aggrieved party fighting for its freedom – all while respecting the rule of law and maintaining solidarity. Last December, the United States finalized its $20 billion share of the G7 loans. Separately, we’ve announced a surge of military assistance to Ukraine through January 20, including hundreds of thousands of additional artillery rounds, thousands of additional rockets, and hundreds of additional armored vehicles. This will serve to exacerbate dilemmas for Putin as he faces mounting casualties – over 600,000 since the start of this tragic war – for minimal battlefield gains.
Taken together, the ultimate aim of our efforts is to provide Ukraine the leverage it needs to negotiate a just and lasting end to the war. Today’s actions leave a solid foundation upon which the incoming administration can build, while putting a clear choice to Russia: either continue to absorb the escalating costs of a tragic and unnecessary war, or take steps to chart a different course.
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