Lawmakers Willing to Water Down Sanctions Targeting Russia’s Energy Sector

Some members say they’re open to revamping language that would have tightened sanctions on one of Moscow’s major sources of revenue.

A Gazprom oil-producing facility in the Yamal region of Russia on July 14, 2016
AP Photo/Petr Shelomovskiy
Sept. 13, 2018, 8 p.m.

U.S. business may soon be breathing a sigh of relief as both Congress and the Trump administration appear to be tempering action on Russian energy sanctions.

Lawmakers are continuing the sanctions push, but some are signaling a new willingness to water down language designed to ding the Russian economy where it would, arguably, hurt the most: the oil-and-gas sector.

That may be the change needed to get a pair of Russia sanctions bill over the finish line, following criticism from industry and market analysts who argue that the current language would unduly harm American companies and their European counterparts, as well as global oil consumers.

But lawmakers are still hammering away at potential revisions, even as they scramble to muscle through a new package before the midterms.

“Nobody wants their ox gored. Nobody wants to be touched. Therefore, we would just nullify sanctions ever as a tool,” Sen. Bob Menendez, the top Democrat on the Foreign Relations panel, said about industry opposition to sanctions. “Having said that, we’re looking at how in fact that might be refined in a way that doesn’t create unintended harm. But the energy sector is a big part, if not the most significant part of the Russian economy, so it’s difficult not to touch it at all.”

And on top of that, Energy Secretary Rick Perry delivered a gift Thursday to the U.S. energy industry, which routinely partners with the Russian energy companies that would likely be targeted in legislation.

Speaking in Moscow following a summit with counterpart Alexander Novak, Perry pledged to work with Russia to “make sure that the citizens of this globe have access to affordable energy,” a veiled indication that the two countries would collaborate to boost oil production in order to lower global prices. Novak took that pledge a step further.

“We agreed to resume the work of our energy dialogue in such areas as energy efficiencies and new technologies,” he said through a translator. “We discussed the cooperation of American companies working in Russia and the cooperation in third countries.”

The two bills most likely to advance on Capitol Hill aim to punish companies for engaging in precisely those partnerships. The Deter and Daska Acts directly target Russian state-owned energy companies, such as Gazprom and Rosneft. Energy is the largest Russian export sector and generates roughly 50 percent of state revenue.

The Deter Act would compel the Trump administration to slap sanctions on those firms if the Director of National Intelligence determines the Russian government interfered in the upcoming U.S. midterms or a future election.

That bill, which would also target those that purchase Russian state debt, has a bipartisan group of 17 cosponsors. Lawmakers, however, are voicing concern that the energy provisions could go overboard.

“Clearly, what we’ve done hasn’t worked, if you define success by changing their behavior,” said Sen. John Kennedy, who is currently not signed on. But, he added, “I don’t want to do anything impulsive here or do anything to hurt our friends or to hurt America.”

The Trump administration has already slapped sanctions on more than 200 Russian entities and people, including well-known oligarchs Oleg Deripaska and Vladimir Bogdanov, who runs the oil firm Surgutneftegaz. And a robust U.S. sanctions regime has been in place since 2014, following the Russian incursion into Ukraine.

But energy experts say the sanctions haven’t impacted Russian energy production or exports.

And the Russians are relying increasingly on their own capital and technology, alongside partnerships with China and Middle East companies, according to Rachel Ziemba, an energy expert at the Center for a New American Security and professor.

“They found ways to work around [the sanctions], and my understanding is the quality available from China, from Russia has improved over the last four or five years,” said Ziemba. “The sanctions are harmful and restrictive, but not a catastrophe for the Russian energy sector.”

The Deter and Daska Acts would cast a wide net and force the administration’s hand more than current sanctions law. “They’re pretty broad. They could go into things that reach pretty far into the energy sector, and I suspect a lot of that is up to Treasury’s discretion,” said Kevin Book, a top consultant at ClearView Energy Partners.

The Daska language “could reach pretty much every project where a Western company is partnered with Gazprom or Rosneft,” he added, pointing to that language as fertile ground for potential revision.

The new legislative push, meanwhile, comes amid a spate of sanctions hearings on Capitol Hill—and despite a White House executive order this week to pave the way for election-meddling penalties.

The order would allow the Treasury and State Departments to slap energy and other sanctions on those responsible for meddling. The Kremlin, which the U.S. intelligence community points to as the chief culprit in 2016 and ongoing election meddling, is not directly mentioned. But sanctions advocates, including Sen. Lindsey Graham, say legislation is still necessary.

“I do appreciate [the White House] doing something. Something is better than nothing,” said Graham, who introduced Daska with Menendez. “What we’re doing is not working. I want to do something that will get their attention. The executive order is the beginning of the discussion, not the end of it.”

But some lawmakers are hesitant to move forward on sanctions, insisting instead that Congress needs to continue to press the Trump administration to exercise sanctions authorities in the Countering America's Adversaries Through Sanctions Act law, which passed overwhelming last year. A range of bipartisan leaders criticize the White House for not going far enough with implementation.

“We have a lot of sanctions on the books. And I think at this point implementation and efficacy are the issues in front of us, not lots of sanctions that aren’t going to be implemented,” said Rep. Gerry Connolly, a Democrat on the House Foreign Affairs Committee. “I am concerned that the administration is skirting on violation of the law.”

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