The US is seeking to disrupt the non-western market for Russian oil and gas, promising a “steady drumbeat” of sanctions enforcement actions, a government official said this week. 

US sanctions on Russian oil have generally focused on weakening the Kremlin’s export revenues while keeping supply steady, stabilising prices. 

The oil price cap, in place across the G7, EU and Australia, permits companies in those markets to facilitate Russian oil trade as long as prices remain below US$60 per barrel for crude, and between US$45 and US$100 for petroleum products. 

But efforts by Russia to reduce reliance on western companies, including by building a vast fleet of so-called shadow vessels, have resulted in a “bifurcation of global energy markets”, Geoffrey Pyatt, the US government’s assistant Secretary of State for energy resources, said on April 8. 

“You’ve got one market, which is deep and transparent and well integrated with the global economy, and you have another market, which is shallow, opaque and unreliable,” Pyatt said at this week’s Financial Times Commodities Global Summit in Lausanne. 

Initial sanctions actions, including the price cap as well as a direct import ban, focused on the western market, but Pyatt said authorities are increasingly looking to disrupt Russia’s alternative options for exporting oil and gas. 

“Our objective in that second market is to raise the costs to the Kremlin as high as possible, in order to drive down the revenues that Russia enjoys, which it in turn uses to pursue this brutal and unprovoked invasion,” he said. 

Pyatt said he would not detail specific future sanctions actions, but added: “You should expect a continued steady drumbeat of US and coalition enforcement actions.” 

As enforcement actions increasingly target specific shipping vessels, one option open to the US government is to expand direct action against Russia’s shadow fleet. 

A February announcement from the country’s sanctions enforcement body, the Office of Foreign Assets Control (OFAC), imposed sanctions on 14 vessels owned by Russian state-owned shipping company Sovcomflot – the largest such action to date. Officials cited “price cap violations in addition to deceptive activity”. 

Speaking at the Lausanne event, Harvard University historian and former banker Craig Kennedy said the action against individual tankers was “unexpected” and could be described as a “black swan” event within the sanctions landscape. 

“It has effectively immobilised them,” said Kennedy, center associate at the university’s Davis Center. “They’re no longer usable for commercial activities. The big question now is how far will OFAC go with this campaign?” 

Kennedy suggested extending sanctions to all shadow fleet vessels “forces Russia back to the mainstream fleet”, meaning oil would have to be sold within the price cap. That would be “good news for European shippers and bad news for Russia”, he said. 

Elina Ribakova, senior fellow at the Peterson Institute for International Economics (PIIE), added that “OFAC-ing directly the tankers [has] been so far very useful”. 

If US authorities continue down that path “they could be very successful at pushing Russian oil towards the mainstream companies”, she said at the same event. 

Introducing sanctions against the wider Russian shadow fleet could present risks, however. 

Kennedy noted restrictions would likely have to be phased in to avoid disrupting the shipping market and driving up freight rates. 

He also said further work would be needed to stop circumvention of the price cap regime, which has become a growing area of focus for sanctions authorities. 

One issue highlighted by authorities is exporters falsifying pricing information, giving the impression cargoes are being sold below the cap.  

Regulators now demand costs be itemised separately rather than bundled together to avoid obfuscating the real price, and Kennedy suggested the attestations companies must provide could be tightened further.