U.S. faces meager options for further Russia energy sanctions

Mon Mar 23, 2015 1:23am EDT
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By Timothy Gardner

WASHINGTON (Reuters) - The United States will struggle to follow through on threats to impose deeper sanctions on the Russian energy sector, as European fears over collateral economic damage leave President Barack Obama's administration with diminished options.

Energy is the economic lifeblood of Russia, which vies with the United States and Saudi Arabia to be the world's top oil producer, and the sector is the main target of Western sanctions over Moscow's role in the conflict in Ukraine.

But current sanctions have already hit the easiest targets in Russia's high-tech exploration projects in the Arctic, Siberian shale, and deep-sea. That leaves the United States with less palatable options, such as trying to target the country's oil exports, as it has done with Iran.

Even though global oil prices have dropped by roughly half since last year, the United States' European allies remain skittish over any damaging repercussions on energy supplies.

Russia could respond by squeezing the gas exports on which Europe relies heavily.

"If you start playing around with oil prices, Russia is going to play around with gas, and there's no way Europe is going to go along with it," said Carlos Pascual, who until last August was the top energy diplomat at the U.S. State Department.

The current top U.S. diplomat on energy issues, Amos Hochstein, says Washington has not exhausted its sanctions toolkit should Russian President Vladimir Putin expand the war in Ukraine. And Treasury Secretary Jack Lew said last week that the administration is ready to "increase the costs" on Russia if it breaks the terms of a ceasefire. 

Hochstein, the State Department's special envoy and coordinator for international affairs, told Reuters it was unlikely Washington would put sanctions on Russia's current oil production, though he stopped short of ruling it out.   Continued...

Fuel pumps are seen at a petrol station in the village of Izveshchatelnyy, south of Stavropol January 12, 2015. Picture taken January 12, 2015.  REUTERS/Eduard Korniyenko