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2022-02-25 11:40:00

RUSSIA, U.S. SANCTIONS AGAIN

RUSSIA, U.S. SANCTIONS AGAIN

PLATTS - 24 Feb 2022 - The US on Feb. 24 stopped short of targeting the energy sector in its latest sanctions against Russia for its invasion of Ukraine, as the White House hopes to limit pain for US consumers and avoid disruptions to energy supplies.

Blocking energy flows and banning Russia from the international financial messaging service SWIFT – two potential responses to Russia's military invasion of Ukraine – remain on the table but were not pursued in the latest sanctions package from the US. Both would have had significant market impacts and come with global economic blowback.

Biden said the US is focused on sanctions that maximize long-term impacts on Russia while minimizing impacts in the US and on our allies.

Sweeping financial sanctions will impose debt and equity restrictions, freeze Russian assets that touch the US financial system and limit Russia's ability to trade in dollars, euros, pounds and yen. The sanctions now cover all 10 of Russia's largest financial institutions, 13 major Russian enterprises, a number of Russian elites and their families, as well as 24 Belarusian individuals and entities for supporting the invasion of Ukraine. And Russia's defense, aviation and maritime sectors will be cut off from needed technologies under unprecedented export control measures.

"Our sanctions package is specifically designed to allow energy payments to continue," Biden said. "We are closely monitoring energy supplies for any disruption. We've been coordinating with major oil producing and consuming countries for our common interest to secure global energy supplies."

The Treasury Department's Office of Foreign Assets Control expanded debt and equity restrictions to 13 state-owned firms, including oil producer Gazprom Neft, gas producer Gazprom, pipeline owner Transneft, power company RusHydro, shipper Sovcomflot, Russian Railways and the country's largest financial institution Sberbank.

To minimize energy price impacts, Treasury granted a wavier until June 24 allowing any energy-related trades with the companies. The license lists a huge swath of allowed energy-related terms, including production, refining and transport across commodities.

Market impact

Crude oil futures fell during Biden's speech, giving back much of their early session gains midday Feb. 24.

NYMEX April WTI rose only 71 cents to settle at $92.81/b -- after rising as high as $99.73/b -- and ICE April Brent settled $2.24 higher at $99.08/b after peaking at $105.79/b in intraday trading.

"I will do everything in my power to limit the pain the American people are feeling at the gas pump," Biden said, warning that US "oil and gas companies should not exploit this moment to hike their prices to raise profits."

He added that the US would release additional barrels from the Strategic Petroleum Reserve "as conditions warrant."

The White House signaled Feb. 22 that it was building a case for a globally coordinated crude stockpile release as the Russia-Ukraine conflict escalated, threatening to spike oil prices and disrupt supplies.

The International Energy Agency said Feb. 22 that member countries "stand ready to act collectively to ensure that global oil markets are adequately supplied."

Russia was the No. 3 oil supplier to the US in November after Canada and Mexico, according to the most recent US Energy Information Administration data.

S&P Global Platts Analytics expects any disruption in the Russian crude to have a minor effect, as US refiners could backfill by easing exports of US Gulf Coast sour crudes, such as Mars. Lower US imports of Russian oil feedstocks would have a bigger impact, but Gulf Coast refiners could run Canadian or Latin American heavy grades at the cost of margins.

Risk of escalation

Biden also warned Russia against launching cyberattacks at American companies and infrastructure.

"We are prepared to respond," Biden said. "For months we've been working closely with the private sector to harden their cyber defenses and sharpen our ability to respond to Russian cyberattacks as well."

House Intelligence Committee Chairman Adam Schiff, Democrat-California, told reporters that Russian cyber tools used against Ukraine could find their way to cyber criminals and cause global damage.

"The other possibility is that Putin lashes out at the US and NATO and, in this kind of hybrid warfare, deploys cyber tools to attack American companies or American infrastructure," Schiff said. "We have to hope and pray that doesn't happen but in warfare there is always the risk of escalation."

Schiff urged US companies to follow best practices relayed by the Biden administration and to "secure their cyber defenses to reduce their vulnerability to either any intended or unintended consequences of Russian cyber actions." He added that he had no seen no evidence of cyberattacks directed at the US over its support of Ukraine, "but it's very early in the conflict."

Stronger measures possible

Pushing back on a question about the sanctions so far not deterring Russian President Vladimir Putin, Biden said the sanctions imposed so far "exceed SWIFT" restrictions.

"The sanctions we imposed exceed anything that's ever been done," he said. "The sanctions we imposed generated two-thirds of the world joining us. They are profound sanctions. Let's have a conversation in another month or so to see if they're working."

Biden contended that removing Russia from SWIFT remained an option but was not currently a move European allies wished to take.

A joint statement from the European Council Feb. 24 said the 27 heads of state and government of the EU had agreed "on further restrictive measures that will impose massive and severe consequences on Russia."

Those sanctions target Russia's energy, transport and other sectors, according to the statement. But no further details were provided.

Belgian Prime Minister Alexander De Croo, who spoke with reporters earlier in the day, said he was open to discussions regarding SWIFT as he advocated for stricter sanctions that "bite."

"Crucial is that you make it as difficult as possible for financial institutions, for corporates to access the international financial markets," he said.

De Croo added that cutting gas supplies was also an option, as it was a measure that could deal a serious blow to the Russian economy and military complex.

Whether those measures made it into the final agreed upon package was unknown as of press time. 

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Tags: RUSSIA, SANCTIONS, USA