Yves here. The US so far has largely held back from “secondary sanctions,” as in trying to impose US sanctions on countries that deal with Russia in ways that would be sanctions violations if done by US persons. China has already said, loudly, that the US has no business interfering in its relations with Russia, so I’d expect a very aggressive response if this plan went anywhere.
On top of that, if the idea is to try to bar other countries from buying Russian oil, the example of Iran says that’s not been very successful. China imports oil from Iran and Japan did through 2019 thanks to a US sanctions waiver. If the US were to punish Chinese banks that facilitated oil trade with Russia by cutting off their access to dollar clearing banks like JP Morgan, by kicking them out of Swift, or cancelling US licenses, odds are good it would wind up being yet another backfire. But China and Russia were already planning to have China pay for Russian oil in renminbi and roubles, which would put it outside US payment mechanisms and therefore ability to see the activity.
Nevertheless, this proposal may get more traction once the “liberated” territories have set dates for referenda.
By Julianne Geiger, a veteran editor, writer and researcher for Oilprice.com. Originally published at OilPrice
U.S. senators have put forward legislation that would impose secondary sanctions on Russian crude oil, Reuters said on Tuesday, in a move that could provoke two of Russia’s largest oil importers, China and India.
Democratic Senator Chris Van Hollen and Republican Senator Pat Toomey—two members of the Senate Banking, Housing, and Urban Affairs Committee—have implored the Biden Administration to enact secondary sanctions on Russia’s crude oil and crude oil products. If passed, the legislation would target banks and other financial institutions, insurers, and brokers of Russian oil that exceed a specific price cap, which the senators suggest should be imposed no later than March 2023.
Targeting banks, the two senators said, would make it more difficult for Russia to evade the price cap by making deals with countries that are not a party to the cap discussed earlier this month, outside the G7.
The administration requires “new authority from Congress” to choke off Russia’s oil revenues, a statement from Van Hollen reads.
The ultimate goal of the legislation is to make it harder for buyers to circumvent the price cap, designed to restrict Russia’s revenue stream from the sale of oil and oil products, which it would then use to fund its activities in Ukraine.
“I promise to work with Senator Van Hollen to get this bill enacted as soon as possible so that Russia can no longer profit from the oil sales funding its war in Ukraine,” Toomey said at a Committee meeting on Tuesday, according to Reuters.
The Committee also believes that a price cap would “reduce the potential for price spikes in the market,” Elizabeth Rosenberg, Treasury Assistant Secretary for Terrorist Financing and Financial Crimes, said at the Committee meeting.
Rosenberg also indicated that guidelines are coming that would address the issue of blending Russian crude with crude from other sources to skirt those sanctions.
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After lots of thoughtful consideration, the US Senate has decided – to double down once again. These people seriously have no reverse gear. If they try to sanction secondary countries from handling Russian oil, then this would have to include all that Russian oil that is going to the EU through back channels. The EU will be in an even worse mess but you think that Washington will care? Do they have an even vague idea what oil prices will be like if this lunatic idea actually is put in place? No country will sell their oil at cost and you can bet that OPEC will not be on board with this idea as they know that they would be next. This will cause even more countries to keep more of their transactions out of the dollar system. So the US is also trying to attack that as well. Just with the Russian Mir cards, Turkey, Vietnam and Kazakhstan are having to pull back on their use after being threatened by the US with sanctions-
https://www.rt.com/business/563227-countries-halt-russian-payment-use/
Would the US seriously sanction nations like India or worse, China? Keep in mind that the US is hoping to use India as a pawn against China.
I suspect that this would isolate the Western world even if they were forced to back down eventually.
This will only further accelerate the process of the US declining.
Would the US seriously sanction Saudi Arabia? They buy about 600,000 barrels from Russia over the summer for a/c.
If you had asked that question a few years ago, I would have laughed and said don’t be ridiculous. Now I don’t know. There is so much delusional, nay obsessive, thinking about this proxy war with Russia and doubling down almost daily on self destructive actions that this deviation from the norm no longer seems impossible. I can imagine it.
I strongly suspect that the ears of Senators Hollen and Toomey wiggle when their lips move.
“His head is so far up his…”
I believe the referendum dates are already set to 23-27 September. So they begin on this Friday. In Luhansk, Donetsk and Zaporozye those days are already declared as “school holidays”, probably meaning the schools will double as polling stations.
It’s also been announced that in LNR and DNR the question will be only in Russian: “Are you in favour of the L/DNR becoming part of the Russian Federation as a subject of the Russian Federation?”. In Kherson (and likely in Zaporozye, too) the ballots will be both in Ukrainian and Russian, and the question is more complicated, because it involves ceding from Ukraine, forming an independent state and then becoming part of Russia as a subject of Russian Federation.
In Kherson the results have been promised in 5 days. So technically they can be part of Russia already during the first week of October. Should Russia accept them.
If you could include Odessa in the Kherson Oblast, Russia would most definitely agree to accept the “new” nation as a member of the Russian Federation. If not, then the fact that Kherson is the natural source of water for the Crimea would guarantee Russia accepting it “into the fold.”
Some members of the Russian duma have already made clear that the referenda results will be looked on favourably for acceptance into the Federation.
If this is anything like earlier Separatist/Russia plays in the Ukraine theatre, these sorts of details have all been worked out well in advance and we’re now just advancing through a set timeline of events. If you’re feeling particularly west-aligned, the results were also arranged in advance.
This is complex stuff. It might cause lots of rearrangements in the industry of refineries and some of them might indeed be the canaries in the mine if they are no longer able to buy oil freely and rely in and compete among them for less suppliers. This is, or was, a dynamic market with very little margin of profit and with constant changes in suppliers and production profiles. My guess is that US senators have no idea on what consequences might this have. Creating bottlenecks here and there might lead to unexpected peaks on certain types of fuels (or in all of them).
“My guess is that US senators have no idea on what consequences might this have….”
Can always keep an eye on what stocks they or their family buys or sells as a hint to what they think might happen.
Am trying to understand how this ups the ante versus the G7 proposal explained in a previous article.
If I have understood correctly, the G7 proposal already was intended to use the dollar payments system as a weapon against Tier 1 traders / brokers who “break” sanctions, wherever the trader is located in the world. So traders who broke the cap would already be subject to exclusion from the dollar payment system. Even if that trader is based in China, for example. Meaning too a need for these traders to keep detailed price, origin and volume records. If they want continued access to dollar payments.
This additional proposal would then (if enacted) widen the use of exclusion from the dollar payments system to include the banks, insurers and ship owners against whom it was not originally intended do that? My understanding was that under the G7 proposal they would simply need a statement from their customer that the price cap was followed but would not otherwise be the target of sanctions if they are an “innocent” party. .
So clearly at a technical level this would widen the numbers of organizations keeping very detailed records. Beyond that, it does create a lot of potential for negative results for the west, as you suggest, Yves. I guess the obvious one is the possible creation of a banking bloc totally disconnected from the dollar, although I do not see how that could work.
If someone has a better understanding please feel free to correct this. This is tricky but it feels important!
Also interesting to understand what the Senators get from this. Are they driven by ideology? I get that supporting arms sales creates a donations money go round but I am less sure that this proposal has a direct benefit of that type. Would be good to understand. There has to be some political logic behind the craziness. Cannot believe that it helps too much with an electorate back home in Wyoming or whatever state a specific Senator is meant to represent.
To your last question, in the American political mythos, the House “represents” the interests of the populace and the Senate “represents” the interests of their state and, tacitly, of the superstructure generally. The Senators, for their efforts, get a world in which the Senate can continue to exist and Senators can live a distinguished existence, in every sense. In a realist frame, the money flows are means to preserve the distinction.
A possible target could be Greek companies. See this, for instance. Greek-Managed Vessel Shipped Coal From Russia After EU Sanctions. Greek shippers are powerful in Greece and I wonder if they can manage sanction schemes with their government. Apparently, sanctions application was previously competence of the flag country within the EU but I don’t know whether the G7 scheme allows a third country to implement those sanctions and how. Isn’t it messy?
I realize that not all shipments delivered by Greek companies go through Greece, but remember that China is the majority owner of Greece’s largest port in Piraeus, thanks of course to the EU putting the screws to the Greeks and forcing them to sell off their assets to foreign investors.
So China could create a bottleneck in Piraeus to help the Greeks get their minds right about whether to abide by any secondary sanctions. I wondered at the time why the EU would allow China to own this port, given that the EU is a US subsidiary and the US had been increasingly wanting to “pivot to Asia”, ie keep China down. In hindsight it seems even more stupid.
Alexander Mercouris in one of his recent youtube videos goes into why this is a really bad for at least several reasons . One If I recall correctly, is that any price cap enforcement would have to involve the shipping insurance companies which is something they would be loathe to do as this would lead to an adversarial relation with their customers. Most of them are in London so this could be an impetus for them to set up shop elsewhere to escape the British and American pressure. Does anyone recall more of the details ?
Seems like this is designed to stave off the end of Petrodollar Hegemony a little longer, but will in fact speed the transition to a multi-polar global currency system. Hmm, the resulting arbitrage chaos will create opportunities for some lucky Millionaires to become Billionaires, but millions of Thousandaires in the US will become Dozenaires.
Is anyone going to be left trading oil in dollar accounts by the time this is all over?
The Hidden Persuaders was a great book by Vance Packer.
It looks like the world is being persuaded to commit economic suicide. The final destruction of Germany, trashing our economic competitors and sucking the marrow out of what’s left of the middle class skeleton.
What’s next? All they need now is another “terrorist event”, maybe one of our own Ukrainian exported manpad missiles, to shoot down a domestic flight in some deplorable burg so the final lockdown can happen. You know the plans are already written.
Vance Packard, I believe.