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A bipartisan pair of senators is pressing the Biden administration to use secondary sanctions to enforce a cap on the price of Russian oil.
The push comes as the US and Group of Seven nations seek to limit Russian President Vladimir Putin’s ability to fund his war in Ukraine.
Senators Chris Van Hollen, a Maryland Democrat, and Pennsylvania Republican Pat Toomey are working on legislation that would impose secondary sanctions on foreign firms that facilitate the trade of Russian oil and on countries that increase their purchases of the commodity.
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“We want a uniform international standard and we want it to have teeth,” Van Hollen said Tuesday on Bloomberg Television’s “Balance of Power with David Westin.” “A price cap only works if everyone in the world complies with it. We do not want any loopholes. We don’t want leaks.”
Van Hollen and Toomey worked together before, cosponsoring the Senate version of the Hong Kong Autonomy Act that imposed sanctions on Chinese officials involved in the crackdown on dissent in the territory and was signed into law by Donald Trump.
The new legislation sets up a clash with the Biden administration, which has previously rejected secondary sanctions as a way to enforce the oil price cap. Biden’s team argues that the economic incentives of a cap are sufficient to induce cooperation and that secondary sanctions would create tensions with nations such as India, which continue to buy Russian oil.
Van Hollen said he and Toomey have been in communication with the Biden administration about their proposal and that it’s intended to reinforce the plan that has been developed by the Treasury Department. Michael Kikukawa, a spokesperson for the department, said Treasury officials look forward to reviewing the bill text when it’s released but added that the agency “has sufficient authorities to implement a price cap and is well-equipped to advance the policy.”
“Our goal remains to work hand-in-hand with our international partners to both keep Russian oil flowing onto global markets at lower prices and to reduce the Kremlin’s revenue for its illegal war in Ukraine,” Kikukawa said in a statement. “There is evidence this approach is already working, with public reports that Russia is scrambling to offer cut-rate discounts on oil to major importers like India and Indonesia in an attempt to get ahead of the price cap.”
But Congress has repeatedly steered the administration toward harder-line policies on Russia since its Feb. 24 invasion. The most prominent example was when the administration, under pressure from lawmakers, reversed its opposition to cutting off some Russian banks from the SWIFT financial messaging system.
If passed, the legislation could provoke a major fight with countries such as India and China, which have ramped up their purchases of Russian oil and have reacted coolly to the idea of a price cap. The US has been careful in its interactions with India on the price cap, pitching it as a way to negotiate lower prices from Russia but steering clear of threatening penalties for failing to join the scheme.
Under the two senators’ proposal, the US and its allies would be required to impose a cap on the price of Russian seaborne oil by March 2023. The cap would then be reduced by one-third every year until it reaches the break-even price within three years, depriving Putin of any revenue above the price of production. The president can waive the price reduction if the administration determines it would cause the global price of oil to spike.
The cap would be enforced by secondary sanctions on any firms involved in the sale or transportation of Russian oil, including banks, insurance and re-insurance companies and brokerages.
The legislation, which hasn’t yet been introduced, would also penalize countries found to be importing Russian oil, oil products, gas and coal above their pre-war levels.
Van Hollen and Toomey said secondary sanctions would give the administration the tools it needs to “hold accountable the financial institutions supporting those countries involved in rampant war profiteering from Russian exports.”
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First Published: Wed, September 21 2022. 08:09 IST