Nearly a month has passed since US President Donald Trump threatened Russia with harsh sanctions for buyers of its oil. There has been very little movement since.
In a series of interviews after the end of the Alaska summit and with the results still unclear, US Secretary of State Marco Rubio nonetheless hinted at the absence of immediate plans to use economic weapons and secondary sanctions against Moscow. Speaking during an August 17 appearance, Rubio said he doesn’t think “new sanctions on Russia are going to force him (Putin) to accept the ceasefire.”
“They’re already under very severe sanctions”, he added, noting that not a single measure has been lifted under the new US administration but also arguing they have not “altered the outcome of it [the war]”.
While Rubio committed to keeping all current sanctions in place if there is no agreement, there was no mention of any measures to maintain the effectiveness of what has already been imposed. That has already made it easier for the Kremlin to evade the West’s measures.
The presence of businessmen and sanctions experts on the Russian negotiating team in Alaska on August 15 indicates the Kremlin’s enthusiasm for a lifting of Western measures that have made it the most-sanctioned country in history.
Despite the endless arguments about the effectiveness of the West’s policies, Russia wants a lifting or an easing of the sanctions. This largely goes against the European, the Ukrainian, and the old US position that the sanctions should remain in place until after a peace deal is signed, the occupied territories are evacuated, and a reparations deal is agreed.
Rubio did, however, make clear that further action remained possible. “If we’re not going to be able to reach an agreement here at any point, then there are going to be consequences, not only the consequences of the war continuing, but the consequences of all those sanctions continuing and potentially new sanctions on top of it as well,” he said.
What these might be, he didn’t say. However, it seems the idea of imposing prohibitive trade tariffs on the buyers of Russian oil is not going to fly.
It’s true the US has imposed a 25% additional tariff on Indian goods, but this falls short of the 100% tariff threatened by Trump in July, and also excludes other buyers of Russian oil, notably the largest, China.
For sparing China, Rubio blamed Europe. “The oil that’s going to China and being refined, a lot of that is then being sold back into Europe”, he told Fox Business on August 17. He said European nations have already expressed unease over any punitive measures against China. “We did hear from a number of European countries — not in press releases, but we heard from them — some concern about what that could mean”, he said.
China does indeed export refined products, including diesel and gasoline. However, according to the Chinese customs data, it mostly goes to Singapore, Hong Kong, Malaysia, the Philippines, Liberia, and Australia.
Rubio’s words are more applicable to India, which is one of the main suppliers of refined products to the EU. However, unlike China, India is now burdened by the US punishment tariff, and the recent EU sanctions package explicitly bans any import of refined products made from Russian oil.
One may reasonably argue that little prevents Indian refineries from refining non-Russian crude for Europe, while using the Russian product for its own domestic market and exports to other countries. However, it doesn’t explain the volte-face of US sanctions rhetoric.
This author argued a month ago that Moscow’s nonchalance towards Trump’s sanctions threat was well-justified. The US can’t afford a prohibitive trade tariff policy against Indian, let alone Chinese goods, and Rubio has implicitly confirmed this.
The Russian economy is flexible enough to adapt to existing sanctions over time; it’s the imposition of the new measures and tighter enforcement of the current ones that cause pain.
For any business, whether circumventing or adhering to sanctions, that wants predictability, the Trump administration has given Russia that. Since the start of his tenure, Trump hasn’t introduced any meaningful sanctions against Russia and hasn’t used the almighty economic weapon of secondary sanctions against the restrictions dodgers.
Nor has the US yet joined the new EU-adopted oil price cap mechanism, which is aimed at reducing Russia’s revenues from oil exports.
The new price cap tracks the global price of oil, establishing a limit at which Russia can sell its crude unhindered. For any sales above that, Russia can’t use the financial, insurance, and shipment infrastructure of the countries that have joined the agreement. The alternative for Russia is to sell it to China, India, Turkey, and other non-Western nations at a discount while using its own shadow fleet and infrastructure. The intention was to deprive Russia of windfall revenues, while keeping Russian crude in the market.
There are serious doubts that this scheme, adopted by the EU in July, would work any better than the old one, with the fixed price cap, but it will definitely not work without US participation.
For years, the US has been the strongest link in the West’s sanctions assault on Russia. America, less dependent on trade with Russia, was bolder in sanctioning companies, assets, and institutions, and was rarely shy in imposing secondary punishments against sanctions dodgers.
Now, it’s Europe and the UK that lead the way. However, with its reluctance to introduce any punitive measures against third countries, the European sanctions arsenal is emptier and blunter than that of the US. If it’s to make a difference, a new and more focused approach will be needed, or Russia will slowly rejoin the world trading system by default.
Alexander Kolyandr is a Non-Resident Senior Fellow at the Center for European Policy Analysis (CEPA), specializing in the Russian economy and politics. Previously, he was a journalist for the Wall Street Journal and a banker for Credit Suisse. He was born in Kharkiv, Ukraine, and lives in London.
More on this and other aspects of the Russian economy in a weekly summary produced by the independent publication, The Bell.
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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