–Analysis–
Since Russia’s invasion of Ukraine, the ineffectiveness of Western sanctions has become apparent in the continued growth of the Russian economy and the sustained high revenues from oil exports.
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Despite these economic gains, there has been no reduction in funding for military endeavors, with defense and security expenditures reaching record levels. Furthermore, weapons and their components are still being imported.
Nonetheless, the United States possesses three potential avenues, contingent on determination, calculation and political will, to significantly impact the Russian economy.
More oil
Despite facing sanctions, Russia continues to derive a significant portion of its budget revenues and foreign exchange earnings from oil. The aggressor country can sustain its war efforts as long as Russian oil prices remain at or above per barrel; however, a drop in prices below this threshold could pose challenges for financing the war as early as 2024–2025.
The United States has the potential to exert considerable influence on the global oil market without resorting to sanctions. By increasing domestic oil production, the United States — already the world’s largest oil producer — can impact world oil prices. Despite this capacity, the Organization of the Petroleum Exporting Countries (OPEC) still wields significant influence in the global oil market. U.S. oil companies, particularly those engaged in shale oil production, have the ability to respond to any reduction in OPEC production. Shale oil accounted for 66% of total U.S. production in 2022, reaching 12.9 million barrels per day in 2023.
While President Joe Biden emphasizes a green agenda, he has encouraged oil companies to boost production, even approving a major drilling project in Alaska. The U.S. has the potential to reach a production level of 15 million barrels per day within five years, according to expert forecasts.
To further stimulate production, the U.S. administration could assure companies of profitability, potentially pledging that domestic prices will not fall below a specified level even if global prices collapse. This strategy could not only reduce Russia’s oil income but also allow the U.S. to secure a larger share of the world market.
More weapons
Despite sending Ukraine approximately 0 billion worth of ammunition, missiles, and tanks since February 2022, the United States and its allies face a shortage of supplies for Ukraine. To address this, the U.S. can utilize the Defense Production Act, a special law applicable during U.S.-involved wars, which enables the subsidization of firms engaged in weapons production.
Producing nearly enough shells to meet demand could embolden actors like Putin to test the West’s strength.
The U.S. has the capacity to boost military spending, which amounted to 3.1% of GDP in 2022 — close to the lowest level since World War II. Even with President Biden’s 6 billion aid request for Ukraine, Israel, and Taiwan, the total spending would only reach about 3.6% of GDP. This is considerably less than the 4.6% spent during the peak of the Iraq and Afghanistan wars in 2010, not to mention the 8.9% spent in 1968 during the Vietnam War.
By employing the Defense Production Act, the United States could substantially increase military production. However, this hasn’t occurred, as state resources have not been utilized to enhance military production, contributing to the prolongation of the war in Ukraine and associated losses.
Russian political scientist Kirill Rogov notes that producing a surplus of shells would prevent war, but excess shells would remain unused. Conversely, producing nearly enough shells to meet demand could embolden actors like Putin to test the West’s strength. Intervention by third countries must be decisive, providing overwhelming support to quickly and significantly strengthen Ukraine’s power, according to a study by economists at the Johns Hopkins School of Advanced International Studies. Otherwise, intervention risks senselessly prolonging the war.
Terrorist label
It would be appropriate to designate Russia as a state sponsor of terrorism, a status currently give to Iran, North Korea, Cuba, and Syria. This designation entails restrictions on U.S. assistance, a ban on exporting and selling defense products, controls on the export of dual-use goods, and automatic exclusion from the international financial system. Governments engaging in arms trade with Russia would face secondary sanctions, and U.S. companies would encounter risks in almost any transactions with Russia.
Furthermore, such a status eliminates the country’s immunity, allowing U.S. courts to entertain claims against Russia. Victims of its terrorist actions could seek financial compensation, potentially accessing funds from frozen Russian assets. This move would significantly complicate all trade with Russia, affecting both the export of Russian goods and the import of chips used in weapons to bypass sanctions.
While the decision rests with the State Department, there is no indication that Antony Blinken is contemplating this possibility. Despite Ukraine pursuing this designation since April 2022 and some U.S. politicians, such as Speaker of the House of Representatives Nancy Pelosi, supporting the idea, President Biden has explicitly stated that he does not see the need to label Russia as a terrorist state. When directly asked in September 2022, he responded with a hard “no” without providing an explanation.
Why isn’t the U.S. doing this?
Each of these approaches comes with its own set of costs.
The significant boost in oil production hasn’t been seriously considered for two main reasons. The United States tends to avoid extensive interference with market mechanisms, and the Biden administration is reluctant to impede the green transition – the shift from fossil fuels to renewable energy sources. Higher oil prices, resulting from OPEC+ actions, are viewed favorably by U.S. authorities as they encourage consumers to move towards subsidized renewable energy.
From the perspective of the Democrats, the green agenda takes precedence over reducing Russia’s oil revenues. While this might appear as misplaced priorities to observers of the Ukraine conflict, the U.S. perceives this war as a regional issue, distant from its core interests, whereas the green transition is considered a global imperative for the decade.
Economists might advocate for low oil prices for producers and high prices for consumers, achieved through substantial taxes on hydrocarbon use. But imposing a high gas tax is likely challenging for U.S. politicians due to potential backlash from voters. Hence, the U.S. has been slow to introduce measures like a significant fuel tax.
There is a lack of significant concern or fear of Putin among U.S. politicians and the public.
Concerning weapon production, delays are not solely due to inadequate funding but also a lack of capacity, which the U.S. is not hastening to address. Plans to double Javelin anti-tank missile production have been pushed from 2024 to 2026. The U.S. is seeking to overcome this limitation by outsourcing production to other countries.
Designating Russia as a sponsor of terrorism faced opposition from the State Department in 2022 due to concerns about the grain deal and potential disruptions in the global oil market. This measure might be reserved for a significant escalation of Russian aggression beyond Ukraine’s borders.
Ultimately, the hesitation to adopt any of these options stems from a lack of significant concern or fear of Putin among U.S. politicians and the public. The threat from Russia is perceived as less severe compared to the threat from China, which is taken more seriously in the American society.
