The Morning Dispatch: Will We Sanction Russian Energy?

Happy Tuesday! Congratulations to Russia for—according to Castellum.AI, an international regulatory compliance agency—officially becoming the most sanctioned country in the world. Ты сделал это, Владимир!

Quick Hits: Today’s Top Stories

  • The United Nations’ High Commissioner for Human Rights reported Monday the number of confirmed civilian casualties in Ukraine has risen to 1,207, including 406 dead and 801 injured. The agency continues to believe the true figures are “considerably higher.”

  • In the Pentagon’s daily background briefing on the war, a senior Defense Department official told reporters the U.S. believes Russian President Vladimir Putin has committed into Ukraine nearly 100 percent of the combat power he had amassed along the two countries’ border in recent months. The official also said Russia launched approximately 125 more missiles in Ukraine over the weekend, and announced Defense Secretary Lloyd Austin had ordered the deployment of approximately 500 U.S. troops to Europe to “shore up” NATO defensive capabilities and deterrence.

  • The Dow (-2.4 percent) and S&P 500 (-3 percent) had their worst day of the year on Monday as investors weighed the economic ramifications of war in Ukraine and Western governments signaling an openness to blocking Russian oil imports.

  • The Senate passed the Emmett Till Antilynching Act by unanimous consent on Monday. Once signed into law by President Biden, the legislation will amend the U.S. Criminal Code to designate lynching as a federal hate crime punishable by up to 30 years in prison. 

Is Russian Gas Finally on the Chopping Block?

An oil and gas refinery in Tobolsk, Russia. (Stock photo via Getty Images.)

In the 12 days since Russian President Vladimir Putin decided to launch his full-scale invasion of Ukraine, the Biden administration and the democratic world have waged unprecedented economic warfare against Russia, following through on a number of sanctions threats many—including the oligarchs!—saw as bluffs. Export controls on high-tech products? Done. Full blocking sanctions on Putin himself? Largely symbolic, but in place within hours. Disconnecting Russian banks from SWIFT? Freezing Russian central bank assets? Check and check.

In combination, the actions have dealt a devastating blow to the Russian economy, wiping out billions upon billions of dollars of value essentially overnight. The ruble has fallen nearly 63 percent against the dollar since the beginning of the year, and, in an effort to stave off hyperinflation, the Russian Central Bank had to more than double its main interest rate to 20 percent. The Kremlin has reportedly implemented a series of price controls and other anti-hoarding measures to keep “socially important goods” available, and losses will only increase when Russia’s stock market—which has been closed for nearly two weeks—eventually reopens.

Yet the shellings of Ukrainian civilians continue, as Russia’s saving grace—the 5 million barrels of oil it exports every day—remains more or less untouched. “In our sanctions package, we specifically designed to allow energy payments to continue,” President Joe Biden said on February 24, likely referring to the general licenses issued by the Treasury Department exempting certain Russian bank transactions from announced restrictions. “I know this is hard, and that Americans are already hurting. I will do everything in my power to limit the pain the American people are feeling at the gas pump.”

In a world where gas prices have jumped 40 percent year-over-year—driving inflation to its highest level since 1982—the decision made political sense. Why exacerbate one of Democrats’ biggest electoral liabilities just months before the midterms? Maybe all these other sanctions will drive Russia to the negotiating table.

But Putin’s continued butchering of Ukrainian men, women, and children has made the position untenable, with Americans increasingly disgusted by the idea of pumping millions of dollars into the Kremlin’s depleted coffers. An NPR/PBS NewsHour/Marist poll conducted March 1-2 found 69 percent of respondents supported sanctioning Russia even if the sanctions resulted in higher energy prices in the United States. A similarly worded Quinnipiac University survey question about banning Russian oil imports got 71 percent of respondents to answer in the affirmative, including 82 percent of Democrats and 66 percent of Republicans.

The move has received similarly bipartisan support on Capitol Hill. On Thursday, House Speaker Nancy Pelosi indicated her support for prohibiting Russian oil imports. “I’m all for that —ban it,” she said at a press conference Thursday. That same day, Sens. Joe Manchin and Lisa Murkowski introduced the “Ban Russian Energy Imports Act,” which does exactly what its title says and already has the backing of at least 16 other Democratic and Republican senators. On Saturday, Senate Majority Whip Dick Durbin threw his support behind a ban, and on Sunday Pelosi formalized her position in a letter to colleagues. And yesterday, the leaders of the House Ways and Means Committee and Senate Finance Committee—Reps. Richard Neal and Kevin Brady, Sens. Ron Wyden and Mike Crapo—announced they’d agreed to a separate legislative framework that would do the same thing, plus suspend normal U.S. trade relations with both Russia and Belarus. 

The only real question at this point is whether the Biden administration will render such legislation moot by acting first.

“No decision has been made at this point by the President about a ban on importing oil from Russia,” White House Press Secretary Jen Psaki told reporters yesterday. “Those discussions are ongoing internally and also with our counterparts and partners in Europe and around the world.”

Although far from definitive, Psaki’s comments represent a significant shift from last Thursday, when she maintained the United States doesn’t have “a strategic interest in reducing the global supply of energy” and argued a ban on Russian imports could “pad the pockets of President Putin” by raising the price of the oil and gas Russia was able to offload. Late Friday, the Biden administration had clarified its position, with a statement from the Treasury Department noting that the carveout for energy transactions would remain in place until June 24, 2022. “In general, energy-related activities—including the purchase, sale, or transport of Russian-origin oil, gas, or other energy-related products by U.S. or non-U.S. persons—remain permissible,” the department posted on its website. “The energy sector of the Russian Federation economy itself is not subject to comprehensive sanctions.”

But in an interview on Sunday, Secretary of State Antony Blinken made clear that the White House’s stance was softening. “We are now talking to our European partners and allies to look in a coordinated way at the prospect of banning the import of Russian oil, while making sure that there is still an appropriate supply of oil on world markets,” he told CNN’s Jake Tapper. “That’s a very active discussion as we speak.”

You could label the strategy “consensus building” or “leading from behind,” but the Biden administration has—from the earliest days of the Ukraine crisis—seemed to prioritize not getting out ahead of those “European partners and allies.” On banning Russian energy products, however, the United States will likely have to chart its own course. Russia accounted for less than 8 percent of the United States’ total crude oil and products imports in 2021. The European Union—which is more dependent on outside energy than the United States in general—relied on Russia in the first half of 2021 for 25 percent of its petroleum imports and 47 percent of its natural gas imports.

The bloc’s leaders have begun discussing plans to eventually bring those numbers down to zero, but the current timeline on that is “within years.” German Chancellor Olaf Scholz was quite explicit on Monday that halting Russia’s Nord Stream 2 pipeline was as far as his country could go. “Europe has deliberately exempted energy supplies from Russia from sanctions,” he said. “At the moment, Europe’s supply of energy for heat generation, mobility, power supply and industry cannot be secured in any other way. It is therefore of essential importance for the provision of public services and the daily lives of our citizens.”

The Biden administration can’t say the same, as the United States—which consumes about 20 million barrels of oil per day—was importing just 84,000 barrels per day from Russia when Putin launched his invasion. For that reason, a U.S.-only ban—without European cooperation—“probably doesn’t have a big impact,” said Nikos Tsafos, an energy and geopolitics researcher at the Center for Strategic and International Studies (CSIS).

But with average U.S. gas prices surging in recent days to their highest level since 2008—$4.17 per gallon today, according to AAA—the White House is scrambling to boost global supply. And after coordinating with allies in Europe and Asia last week on a largely symbolic, 60-million-barrel release from the countries’ respective reserves, the administration’s remaining options are far more unsavory.

In her press briefing on Monday, Psaki all but confirmed a New York Times story from over the weekend that—in an effort to increase global oil production—the White House had sent a delegation to meet with representatives of Nicolás Maduro, the Venezuelan autocrat whose illegitimate government the United States stopped recognizing in 2019. She denied a separate report that White House advisers were weighing a presidential visit to Saudi Arabia in the coming weeks for a similar reason. (Democratic Sen. Bob Menendez, chair of the Foreign Relations Committee, said Monday he “strongly oppose[s] any action that fills the pockets of regime oligarchs with oil profits while Maduro continues to deprive Venezuelans of basic human rights, freedoms, and even food.”)

Ben Cahill—a senior fellow in CSIS’s Energy Security and Climate Change Program—wondered why the Biden administration was bothering with such “far-fetched” plans. “To me, a much simpler option is, talk to domestic producers, encourage them to ramp up investment, talk to investors, talk to the banks and asset managers, and try to crank up unconventional production in the United States as fast as you can,” he told The Dispatch. “That’s the most flexible, responsive source of supply in the world. Why go to Venezuela when you can do this at home?”

The White House claims it’s doing both. “The suggestion that we are not allowing companies to drill is inaccurate,” Psaki claimed yesterday when pressed on Biden’s January 2021 executive order pausing new oil and natural gas leasing on public lands. “We have been clear that in the short term, supply must keep up with the demand here and around the world, while we make the shift to secure a clean energy future. … There are 9,000 approved drilling permits that are not being used.” A December 2021 report from the progressive advocacy group Public Citizen was highly critical of the Biden administration for continuing to “issue permits for drilling at a frightening pace.”

American Petroleum Institute CEO Mike Sommers—a lobbyist for the oil industry—accused the White House of “misusing” that 9,000 unused permits figure. “Just because you have a lease doesn’t mean there’s actually oil and gas in that lease,” he told Bloomberg yesterday. “There has to be a lot of development that occurs between the leasing and then ultimately permitting for that acreage to be productive.”

But record-high prices—crude, still rising, is up about 60 percent since the beginning of the year—will inevitably lead companies to shake off some of the capital discipline that defined 2021 and increase their production. Exxon Mobil and Chevron both announced major expansions in the Permian Basin last month that could result in an additional 160,000 barrels per day.

“The industry’s going to respond to market signals, and the market will take care of most of this on its own,” Cahill said, though he noted it will take some time. “I do think that the White House could give its political blessing. It could bring together oil companies and investors, and urge them to do more. … But man, if there’s ever a signal to ramp up investment, it’s $115 oil.”

Worth Your Time

  • The Atlantic on Monday published a photo compilation from Associated Press, Reuters, and Getty photographers depicting Ukrainian refugees’ final moments in their home country as they said goodbye to family members and loved ones staying behind. From a father waving goodbye to his two-year-old son, to Ukrainian soldiers helping an elderly woman cross a river where a bridge once stood, to a young girl in a rescue blanket clutching her doll, these pictures explain the terror and grief Putin’s war has caused better than just about any article could.

  • After more than 24 years away, Washington Post correspondent Isabelle Khurshudyan finally returned to Odessa, the city where she and her parents were born. “Now that I’m finally here, I wish I wasn’t,” she writes in her dispatch from the coastal city, where she’s been able to reconnect with her 81-year-old great aunt, Baba Zina, who refused to evacuate. “When I asked why that was, she scolded me, telling me to not get distracted from driving. Then she explained that she was born in this city. It’s her home. She visited the United States four times. Four of her siblings moved there, but she returned to Odessa each time. There’s something about this city—with its roots back in imperial Russia, its classic architecture, its appreciation for artists and its Black Sea beaches—that make people romantic about it. Peak Odessa: The opera and ballet theater is the most fortified building in town, surrounded by a wall of sandbags. ‘I visited the Vienna opera house just to see how it compared to ours. Ours is better,’ Zina said as we drove by the theater. ‘I went to the one in Paris, too. It was nice, of course. But ours is nicer.’”

  • In a piece for National Review, John McCormack notes how Russia’s invasion of Ukraine has diminished America’s already fledgling neo-isolationist movement even further. “A Quinnipiac poll released this week found that 80 percent of Republicans believe Biden has not been tough enough on Russia in response to the invasion of Ukraine, while only 2 percent believe Biden has been ‘too tough,’” he writes. “Missouri Republican Josh Hawley isn’t an isolationist, but he is the most prominent populist in the Senate GOP. Before the invasion, in February, Hawley was one of only twelve Republican senators who declined to sign a letter laying out the sanctions Russia would face if it invaded. Despite his strong non-interventionist streak, Hawley came out in favor of tough sanctions after the invasion. ‘The most important thing we can do,’ Hawley said earlier this week in the Capitol, is to ‘arm the resistance.’”

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Toeing the Company Line

  • On the site today, Harvest chronicles the efforts of Ukraine’s churches to ameliorate the country’s unfolding humanitarian crisis, while Paul Miller gives a blunt assessment of the importance of avoiding western military engagement with Putin and Behnam Ben Taleblu tracks the latest in the White House’s ongoing nuclear negotiations with Iran.

  • On today’s episode of Advisory Opinions, David and Sarah discuss five Supreme Court opinions, including cases involving criminal law, state secrets, and social media moderation.

  • It’s Tuesday, which means Dispatch Live is back! Tune in tonight at 8 p.m. ET/5 p.m. PT for a discussion with Sarah, Declan, Klon Kitchen, and Scott Lincicome on the latest in Ukraine and how it’s already affecting domestic politics.

Let Us Know

What should we talk about during Dispatch Live tonight?

Reporting by Declan Garvey (@declanpgarvey), Charlotte Lawson (@lawsonreports), and Steve Hayes (@stephenfhayes).

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