You would not be mistaken in thinking that last night the Trump administration levelled some very harsh sanctions on Russia. I mean, that was the public rhetoric used by the administration to announce their latest maneuver, and it was a line eagerly taken up by the press.
However, what If I were to tell you that what actually happened yesterday was that the sanctions that could really damage the Russian economy were put off for at least the next four weeks and even then no commitment was made to implement them—what would you think? For that is the reality. Instead of two weeks, in this case the Trump administration has provided some protection to foreign companies (think Chinese, Indian, Turkish, which are buying and refining lots of Russian oil) until at least November 21.
Four more weeks.
What was sanctioned yesterday was US firms and individuals that deal with two large Russian oil companies, Rosneft and Lukoil (which together handle the flow of about half of Russian oil). Here is the US Treasury announcement. It looks pretty damn impressive—until you get to the small print. What you will see is that these sanctions are not automatically applied to foreign individuals or companies—the words used are “may result in” and “run the risk of” being sanctioned (see bold below).
Violations of U.S. sanctions may result in the imposition of civil or criminal penalties on U.S. and foreign persons. OFAC may impose civil penalties for sanctions violations on a strict liability basis. OFAC’s Economic Sanctions Enforcement Guidelines provide more information regarding OFAC’s enforcement of U.S. economic sanctions. In addition, financial institutions and other persons may risk exposure to sanctions for engaging in certain transactions or activities with designated or otherwise blocked persons.
In addition, foreign financial institutions that conduct or facilitate significant transactions or provide any service involving Russia’s military-industrial base, including any persons blocked pursuant to E.O. 14024, run the risk of being sanctioned by OFAC. For additional guidance, please see the updated OFAC advisory, “Updated Guidance for Foreign Financial Institutions on OFAC Sanctions Authorities Targeting Support to Russia’s Military-Industrial Base,” as well as OFAC Frequently Asked Questions (FAQs) 1146-1152, 1181-1182.
So what this order really does is sanction US companies and individuals that work with Rosneft and Lukoil (and maybe it makes it more difficult for those firms to transact in US dollars). However the US does almost no business with either Russian firm, and for the last 3.5 years the Russians have become expert and transacting oil sales without using US dollars—so these immediate sanctions are at best mild irritants.
The real power of such sanctions would be if the US put secondary sanctions on foreign companies that are buying oil from Rosneft and Lukoil. However not only are secondary sanctions not mandated in the order (just threatened as above) it turns out that the earliest that even the threats could be acted on is 21 November—more than 4 weeks from now. All firms have been given by the USG until 21 November to “wind down” their business dealings with the Russian companies.
And what happens on 21 November you might ask? Well nothing definite. That is the earliest now that the US government could conceivably level the secondary sanctions on foreign firms—but the US is under no obligation to do so. The Atlantic Council, which tried to put the best face possible on this move, was forced to admit that that really had happened was threats to act—not commitments. The summary point in their paper on this reads:
The primary sanctions against Rosneft and Lukoil, Kim notes, were pursuant to Executive Order 14024, which she says is significant because it “carries the threat of secondary sanctions on foreign financial institutions that continue to do business with the sanctioned companies.”
If we have learned anything about Trump is that his threats towards Russia are invariably BS. We have had 9 months of continual threats—with almost no follow through.
Indeed, those who are not beholden to try and present Trump administration actions in the best possible light, were far more damning of what had actually happened. Jeremy Paner, a former sanctions investigator at the Treasury Department and now a partner at law firm Hughes Hubbard & Reed, was quoted as saying that the absence of banks and Indian or Chinese oil purchasers in Wednesday’s sanctions means they “will not get Putin’s attention”.
So for these sanctions to actually be tough and hurt Russia we will have to wait at least four more weeks, and see if Trump agrees to secondary sanctions on Indian, Chinese, Turkish, firms buying Russian oil. I think the odds against such a move are, shall we say, long. Trump admitted in the oval office last night that he was hoping that these new sanctions would be very short-lived in any case.
So who knows if any of these sanctions are even in force in 4 weeks.
And if you want further signs of just how we need to look at Trump’s threats—last night he admitted that all his Tomahawk to Ukraine talk was BS from beginning to end. Sitting next to NATO Secretary General Mark Rutte, Trump said that the only way Tomahawks would ever be fired on Russia would be by the USA. Ukraine had no chance of getting the weapons.
“The only way a Tomahawk is going to be shot is if we shot it,” the president added.
The threat of secondary sanctions should be seen in this light.
So in the short term the Trump administration has actually helped Russia. It has provided a four week grace period for foreign companies to buy as much Russian oil as they possibly can, safe in the knowledge that the earliest they can conceivably be sanctioned by the USA is 21 November.
Its provides a grace period for Rosneft and Lukoil to plan and set up shell-companies, dummy organizations and the like to keep the oil flowing after 21 November, if the Trump administration brings in secondary sanctions (which it probably will not).
It provides a grace period for these companies to pre-pay all purchases in US dollars without the threat of sanctions (were they so inclined) or to make sure that they have alternate payment plans in operation so that they do no use dollars after 21 November.
In other words it provides protection and planning time for Russia to transact its oil business with its crucial customers for now—and maybe forever.
Its not deciding in two weeks, its deciding in four weeks.
But if you want to believe in rainbows, fairy tales, and the like—knock yourself out.
I cant help thinking about the siege of Paris in November 885, when Rollo and the Norsemen came with approximately 300 longships to sack Paris, as their ancestors did in 845. Count Odo had in advance built sufficient fortifications, so the Vikings could not breach the city walls. After being more or less under siege for almost a year, Count Odo snuck out and summoned his King, Charles the Fat.
The King arrived Paris with his army, but instead of fighting them, encouraged the Vikings to go farther upstream to raid Burgundy, which apparently was revolting against the king at the time. Not only that, the King promised the Vikings 257 kilograms of silver, to be paid as soon as they left Frankia. This enraged Count Odo, who could do nothing more than making the Vikings exit Frankia less easily, by having to drag their ships on land past Paris.
Is there a point to this? IDK, perhaps that your enemies could very well be your King's business partners.
Thanks for unpicking this seemingly harsh set of “sanctions”! As usual, journalists covering these issues have been taken in - the FT this morning writes “the move marks the first time the Trump administration has imposed direct costs on Moscow over its full-scale invasion”. Perhaps Kaja Kallas the EU’s top diplomat is not so starry eyed, as she is quoted as saying “we are happy about the signals we get from America regarding the sanctions - it’s an important sign of strength that we are aligned here”. We shall have to wait for the official announcement of the EU’s 19th package of sanctions to see if they are any more immediate and significant. And the €140 billion “loan” to Ukraine is still not approved either.