ADVISERS to US president-elect Donald Trump are crafting a wide-ranging sanctions strategy to facilitate a Russia-Ukraine diplomatic accord in the coming months while at the same time squeezing Iran and Venezuela, sources familiar with the matter said.
The outgoing Biden administration on Friday (Jan 17) imposed the most disruptive sanctions on Russia’s oil trade by any Western power to date. The move created an open question about how Trump views the measures, given his commitment to quickly ending the war in Ukraine.
There are two main approaches under consideration by the Trump team. One set of policy recommendations – if the incoming administration believes a resolution to the Ukraine war is in sight – involves some good-faith measures to benefit sanctioned Russian oil producers that could help seal a peace deal, said the sources, requesting anonymity as the deliberations are private. A second option would build on the sanctions, ramping up pressure even further to increase leverage, they said.
Scott Bessent, Donald Trump’s nominee for Treasury secretary said on Thursday he supports dialling up the sanctions on the Russian oil industry to end the war in Ukraine.
“I will be 100 per cent on-board for taking sanctions up,” especially on Russian oil majors, Scott Bessent said during a Senate committee hearing. “I believe that the sanctions were not fulsome enough,” Bessent said of the existing efforts, adding that the Biden administration was worried about raising energy prices during an election season.
The approach that Trump ultimately chooses is pivotal to the global oil market. Brent futures have gained almost US$5 a barrel since Biden’s measures were announced. Some analysts anticipate further gains, something that would drive up fuel costs around the world.
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The Trump team’s plans are in the early stages and ultimately depend on the president-elect himself, the sources said. Last week, Trump said a meeting with Russian President Vladimir Putin was being set up, raising the prospect of potential near-term negotiations to end the war.
The strategy discussions include some of Trump’s Cabinet nominees as well as former sanctions officials in his first administration, the sources said. Several conservative-leaning think tanks are also being sounded out. The transition team has yet to announce Trump’s picks for some key roles involved in economic statecraft.
Among the lingering questions are whether Brad Smith and Andrea Gacki, two US Treasury Department veterans, will stay on in senior roles.
Trump’s advisers will ultimately be wrestling with the same question as the Biden administration – how to avoid major supply and price disruptions to the oil market at a time when Washington has extensive sanctions on three of the world’s top producers. Another challenge: Calibrating the right balance between leveraging the tools of economic warfare with the desire to maintain the US dollar’s status as the global reserve currency.
Spokespeople for Trump’s transition team did not respond to an e-mailed request for comment.
Secondary sanctions
An early barometer of how the Trump team tackles sanctions on Russia will come in mid-March when a general license permitting a wind-down in purchases of Russian energy products is set to expire. If the Treasury Department allows the exemption on some transactions to lapse, it could ratchet up pressure on the Kremlin.
On Wednesday, officials introduced measures to make it harder for Trump to lift some of the sanctions on Russia unilaterally. They re-designated several entities, requiring the president to notify Congress if he plans to lift restrictions on them, potentially triggering a vote of disapproval if members object.
For the Trump team, a more aggressive Russian policy mix could entail greater enforcement of secondary sanctions on oil trading, penalising European shippers as well as Asian buyers, including major entities in China and India, the sources said. Another possible approach: Pushing for more assertive interventions on tankers moving Russia’s oil through the vital Danish and Turkish chokepoints.
A softer-touch scenario might mean issuing general licenses and lifting the price cap to higher than US$60 per barrel – moves that would encourage Russian oil to keep flowing to the market.
In his confirmation hearing on Wednesday for secretary of state, Marco Rubio cited the sanctions as a key piece of leverage that could bring about a peaceful resolution.
Elsewhere, the Trump team is also assessing policy options for Iran and Venezuela.
There’s a general consensus among his key advisers to return to a full maximum pressure strategy targeting Tehran, starting with a big sanctions package that hits major players in the oil industry, which could come as early as February, the sources said. During Trump’s first term, a similar approach significantly curtailed Iranian oil exports, though they have climbed since President Joe Biden took office.
The situation is more complex in Venezuela, where long-time ruler Nicolas Maduro just got sworn in for another term amid widespread evidence of election fraud but US oil firms such as Chevron also have a presence.
Maduro survived the Trump administration’s maximum pressure strategy, even as it curbed the nation’s oil exports, and also outlasted an effort by Biden officials to facilitate free and fair elections. Mauricio Claver-Carone, an influential adviser during Trump’s first term, will be returning to a prominent role on Latin America, and there’s a desire to restore the more aggressive posture he helped steer around 2019, when the US stopped recognising Maduro as the legitimate president of Venezuela, the sources said. BLOOMBERG
