Eddie Fishman
@edwardfishman
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Author of Chokepoints: American Power in the Age of Economic Warfare | Senior Research Scholar @ColumbiaUEnergy, Fellow @CNASdc @AtlanticCouncil
Joined June 2009
"Chokepoints" made the New York Times bestseller list!. I’m deeply grateful to everyone who made this possible—your support means the world to me. I can’t wait to share the book with even more readers in the weeks and months ahead
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The US just unveiled the details of its sanctions against the Central Bank of Russia. Bottom line: This is close to the most ambitious form that this action could take. Here's my initial analysis (🧵):.
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Putin's war shows no sign of letting up. It's time to impose sanctions on the lifeblood of Russia's economy: Oil. Oil is the weak spot in the pressure campaign. It doesn't have to be. Here's how the US & Europe can cut Russian oil sales while limiting adverse side effects (🧵):.
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Sanctions against Russia have been unprecedented in speed, the scale of targets, and international cooperation. But they are NOT comprehensive. They remain a 7/10 or 8/10 in intensity, not a 10/10. A few myths that require correcting (🧵):.
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As Russian forces move on Kyiv, it's time to get serious about ratcheting sanctions up a notch. The US and Europe have ample room for escalation. A few thoughts on the option set (🧵):.
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Today, the G7 formally endorsed a price cap on Russian oil sales. This plan has been in the works for months. Many doubted it would get across the finish line. Bottom line: This is a big deal. It will erode the Kremlin's most critical source of revenue: oil exports (🧵):.
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(5) This is a sanctions action without precedent. As a result, the specific consequences aren't easy to predict with a high level of confidence. But the consequences will certainly be far-reaching. And it took a whole lot of courage for the US and Europe to take this step.
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European banks are sitting on well above $200 billion in frozen Russian assets—more than the total value of all U.S. aid to Ukraine over the past three years . Now would be a good time to seize them and give them to Ukraine.
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What do today's first wave of US sanctions mean? A short 🧵 . .
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(3) Today's action was remarkably well coordinated with the EU. To many observers' surprise, the EU roughly matched the US actions, including imposing sanctions on Russian sovereign debt. The message to Putin? The US and EU are much better aligned than skeptics have claimed.
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(3) Now that the details are out, it looks like these are essentially blocking sanctions. (There are technical differences, but the effect is the same—"any transaction" with the CBR is prohibited.) The CBR will be unable to intervene in FX markets to prop up the ruble, full stop.
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The US, EU, Canada, & the UK just released a joint statement committing to several major sanctions actions, including a SWIFT ban and restrictions on the Central Bank of Russia. This is a big deal, but details will matter. Here's my initial analysis (🧵):.
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(5) Don't get me wrong: the sanctions campaign has been impressive. The US and Europe have shown remarkable solidarity and resolve. But now is not the time to rest on our laurels. Ukrainians remain under heavy fire. The West needs to step up the pressure. /end.
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Putin's unprovoked war against Ukraine is a crime against humanity. No sanctions can be proportional to the violence wrought upon Ukraine. The least the West can do is impose "swift and severe consequences" as @POTUS has promised. A few thoughts on what this should look like:.
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(4) The US directive also applies to Russia's National Wealth Fund and Ministry of Finance. Consequently, the action renders ALL of the Russian government's rainy day funds inert. It is comprehensive. (SOEs aren't included, but their FX holdings aren't nearly as large.).
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(5) If Putin intensifies aggression, I expect today's action is just the tip of the iceberg. It signals what's to come (more sanctions on bigger Russian banks) & demonstrates impressive unity between the US & EU. Here's hoping Russia backs down and no more sanctions are needed.
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(2) Then, Ursula von der Leyen, European Commission president, dropped a bombshell, saying sanctions would "paralyze the assets of Russia’s central bank" & "freeze its transactions." To my ear, this sounded a lot like blocking sanctions—the strongest sanctions tool we have.
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(1) The US imposed full-blocking sanctions on VEB, the fifth-largest Russian financial institution. VEB serves as a policy instrument of the Russian state. Why does this matter? It's the first time the US has used its toughest sanctions tool on a major state-owned Russian bank.
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.@POTUS just announced very robust sanctions against Russia. Bottom line: these are indeed the "swift and severe consequences" that Biden warned about. Banking sector is the main target, but penalties go well beyond and cut across the commanding heights of Russia's economy.
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Should the US and Europe lay out explicit conditions for the removal of sanctions on Russia?. No, they should not. In fact, doing so would be premature and counterproductive. Here’s why (🧵):.
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(4) There's A LOT the US kept in reserve, including the sweeping technology export controls that it has previewed. My understanding is the US has gotten many others, including in Europe and Asia, on board as well. Expect these to roll out soon if Russia continues to escalate.
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(1) Not all Russian banks have been cut off from SWIFT. In fact, the EU has cut off just 7 Russian banks from SWIFT. Of the 5 largest Russian banks, just one (VTB) is banned from SWIFT. Sberbank, which is by far Russia's largest bank, retains access to SWIFT.
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.@POTUS said he is "convinced" Putin has decided to invade Ukraine. It was a chilling statement and an ominous sign of what lies ahead. If Putin does invade, the US will follow up in short order with its threat to impose sanctions. A few thoughts on what that means:.
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(1) As I explained on Saturday, the joint statement hinted at limited sanctions against the CBR. Not blocking sanctions (i.e., asset freeze and transaction ban), but something more scalpel-like to prevent the CBR from undermining other sanctions.
The wording suggest a more scalpel-like measure, in which the allies prevent the CBR from deploying reserves to bail out other sanctioned entities. Yes, this would be a big deal. But it would not be as big of a deal as full-blocking sanctions on the Central Bank of Russia.
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(2) The use of full-blocking sanctions against VEB represents a step change from where we were in 2014. What does it signal? That the Biden administration is prepared to use this tool against other state-owned Russian banks, including even larger ones, if conditions warrant it.
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(4) It is misleading to call Russia the "world's most-sanctioned country." Tallying up individual targets is meaningless. The right question is: How comprehensive are restrictions? Iran and North Korea remain far more economically isolated than Russia is.
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(5) Most critical of all, however, is cutting Russia's oil sales directly. This cannot be done overnight—5m bpd is too much supply to replace at a stroke. But that doesn't mean it can't be done in phases. In fact, a phased approach is exactly how the US slashed Iran's oil sales.
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. Putin has touted his >$600b in foreign exchange reserves. If the US and EU were to block the Central Bank of Russia, much of those reserves would become unusable. Putin's rainy day fund would all but evaporate.
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(2) No, "self-sanctioning" has not devastated Russia's oil sales. Russian oil is still finding buyers. To truly curb Russia's oil sales, Europe will need to reduce its own imports, and the US & EU will need to launch a global secondary sanctions campaign.
When sanctions first hit, there was speculation that shipping companies would self-sanction and stop sending their oil tankers to Russia. Now that we're close to having full data for March, there's no evidence of that. Tanker traffic in March 2022 is on par with previous years.
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This is a hammer blow against Russia's financial sector. Both Sberbank and VTB targeted. Biden telegraphed this and made good on the threat. More surprising is breadth of targets — well beyond just the banking sector. Bottom line: no sector of the Russian economy is off limits.
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. The best way to target Putin is to erode his popular support in Russia among both everyday Russians and the oligarchs. In other words: tough sanctions against the Russian economy and oligarchs are the best way to target Putin.
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(3) It is only partially true that the effects of sanctions "worsen over time." Yes, sanctions will curtail Russia's economic & technological development. But sanctions-induced financial panic is already abating. Keeping up pressure requires ⬆️ sanctions.
Russia's domestic banking system is gradually stabilizing. Severe bank runs triggered by the war and sanctions appear to have moderated. The chart shows how much the banking system as a whole deposits (+) or borrows (-) from the @bank_of_russia
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(14) I believe such a campaign is likely in the coming months. The only question is: When?. My perspective: Putin's aggression in Ukraine is worsening each day, and it will take time to reduce Russia's oil sales in a major way—so the sooner we begin, the better. /end.
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(1) First things first: Russia's economy is heavily dependent on oil sales. Russia exports 5m barrels of oil per day. This accounts for roughly half of Russia's export revenues—by far Russia's largest source of cash. Oil adds >$100b to the Kremlin's coffers each year.
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As Russia's brutal atrocities in Ukraine come to light, gaps in sanctions that allow ongoing business with Russia are becoming hard to justify. @crmiller1 and I argue in @ForeignAffairs that the West should maximize sanctions now. A few key points (🧵):
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. So, if we want Russian banks cut off from SWIFT, we must advocate for sanctions against ALL Russian banks first. Per above, only one major bank—VTB—is fully blocked. So there's a long way to go before ALL Russian banks are blocked. Let's not put the cart before the horse!.
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(2) The West has avoided targeting Russia's oil sales for two reasons: first, concerns about spiking domestic gasoline prices; second, if oil prices ⬆️ by more than Russia's sales ⬇️, sanctions could perversely benefit Moscow, as it could earn more cash selling less oil.
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(1) So far, the sanctions effort has focused on Russia's state-owned banks. But only one major bank—VTB—has been fully blocked. A next wave of sanctions could involve full-blocking sanctions against Sberbank, Gazprombank, and other major Russian financial institutions.
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The Russian government made $117 million in bond coupon payments, averting a sovereign default. How was this possible? Does this mean sanctions aren't working? A short 🧵:.
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What will I be watching for? The names of the "selected" banks. If the banks include the big fish—Sberbank, VTB, and Gazprombank—this is an absolutely huge deal. Let's wait and see.
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(5) Some in the media have called SWIFT the nuclear option. Per above, this overstates the case. (I'd also add: No sanctions are "nuclear" in their effect; they're just not that powerful.) In reality, the most impactful sanction would be to fully block the Central Bank of Russia.
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The US just announced a new raft of sanctions on Russia. Bottom line: This is the biggest new round of sanctions since the Central Bank of Russia action more than a month ago. But there are still gaps that need to be closed. Quick analysis (🧵):
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(3) I see lots of talk about sanctions against Putin directly. Such a step would be reasonable, but let's not overstate the impact. Putin treats the entire Russian economy as his personal piggy bank. Sanctions will not impoverish Putin or change his life in any meaningful way . .
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(2) There has been a lot of talk about SWIFT. First things first: it is the EU, not the US, that has the authority to cut Russian banks off from SWIFT. All the US can do is apply pressure and persuasion to make that happen. Cutting Russian banks off from SWIFT . .
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(4) There is more that can be done to curtail Russia's future oil production. For starters, the prohibitions on Arctic offshore, deepwater, and shale could be expanded to cover ALL oil projects in Russia, including existing conventional projects.
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(10) Taking another page out of the Iran playbook, the US and Europe should require Russian oil revenues to remain in bank accounts located in purchaser countries. This would ensure Moscow can't use its oil proceeds to fund its military machine.
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(8) A similar model could be used to cut Russia's oil exports. The first step for the US is to stop importing Russian oil ourselves. This should be easy: we buy just 13.5k bpd from Russia. We can replace that swiftly and with minimal consequences.
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. is a reasonable option for escalation, but only AFTER those banks have been fully blocked. If the EU were to cut off Russian banks from SWIFT without blocking them first, the impact would be marginal, and perversely, demand to use SWIFT alternatives would increase . .
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(4) @POTUS has been careful to craft sanctions that won't spike oil prices. Unfortunately, oil accounts for ~45% of Russia's export revenues—by far the largest source. Eventually, ratcheting up pressure will require targeting the Russian oil sector . .
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Details:.(1) Sberbank cut off from transacting in dollars.(2) VTB fully blocked and all assets frozen.(3) Debt/equity restrictions on vast array of Russia firms, in mining, metals, energy, transportation, logistics.(4) Unprecedented multilateral export controls on critical tech.
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(3) The West has not, however, kept Russia's oil sector entirely off-limits. It has just focused on future production, not current sales. Rosneft, the state-owned oil giant, has faced debt sanctions since 2014. There have also been sweeping prohibitions on the provision . .
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As the US & EU discuss cracking down on sanctions evasion, I'm hearing more and more chatter about "secondary sanctions.". What are secondary sanctions? How might they be applied to Russia? . A semi-technical explainer 🧵:.
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. of goods & services to Arctic offshore, deepwater, and shale oil projects in Russia since 2014. Last week, the US also imposed controls on exports to Russia's oil refineries, noting a "a strong interest in degrading Russia’s status as a leading energy supplier over time.".
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(9) The next step is harder: the US & Europe need to threaten secondary sanctions against anyone around the world that buys Russian oil. But they should provide exemptions for entities based in countries that "significantly reduce" their purchases over the previous 3-6 months.
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. Meanwhile, oil proceeds could only accrue in Iranian-owned escrow accounts in third countries. For instance, if Chinese buyers paid Iran for oil, that cash built up in Iranian bank accounts in China. It could only be used for bilateral trade; it couldn't flow back to Iran.
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(7) Unless a miracle happens and Putin pulls back from the brink, I suspect many of these escalatory steps may happen in the weeks and months ahead. The only questions are: How soon will they happen? And how united will the US and its allies be behind them? /end.
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. Additionally, the sanctions caused tens of billions of $ of Iranian oil revenues to build up in foreign bank accounts. The prospect of repatriating these funds to Iran gave the US a major carrot in nuclear talks. Iran could literally quantify the benefits of a nuclear deal.
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(6) Some history: The Iran oil sanctions were the result of Congressional legislation—NDAA for FY2012. The design was clever. Buyers of Iranian oil could continue buy so long as their country "significantly reduced" their total purchases over the preceding 6 months . .
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(11) This phased reduction strategy would deprive the Kremlin of billions without shocking global oil markets. It would give a strong market signal to other producers to compensate for diminishing Russian cargoes. It would cut Putin's cash flows at their source.
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(7) These sanctions led to consistent and substantial reductions in Iran's oil sales: from 2.5m bpd to under 1m bdp in just a year and a half. When the US reinstated the program in 2018, Iran's oil exports dropped even further, falling below 500k bpd . .
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(12) It just might be MORE effective than the Iran strategy. The US led the campaign against Iranian oil largely alone. On Russia, the US & Europe would be working hand-in-hand, leveraging access to their markets & financial systems to disincentivize purchases of Russian oil.
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. Moreover, many market participants are already voting with their feet and ceasing purchases of Russian oil. The reputational hazards of paying Putin millions are just not worth it. See: the backlash against Shell for buying a Russian oil cargo at a bargain price last week.
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Second, the US could target Russian oil sales. A dramatic cutoff is probably impossible. Even if it was, it might perversely benefit Putin as oil prices spike. A better approach is to lay out a plan in which the US commits to reduce Russian oil exports to zero over several years.
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. This can come in two forms: First, sanctions on investment in oil projects and oil production itself. These will only affect future production (not current sales), and I see no reason why such measures shouldn't be enacted now.
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(6) The US should be judicious in applying these sanctions. None of them is worth a nasty food fight with the EU. I suspect as Putin's aggression becomes uglier, it'll be easier to secure transatlantic unity for tough measures. Some patience may be warranted.
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(13) How could such a campaign start? The US & Europe could launch it today, if they so choose (they should). Alternatively, the US Congress could require such a campaign in future legislation. Recall this is how the campaign against Iran's oil exports was born.
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I'm thrilled to share that my new book, CHOKEPOINTS, is coming Feb. 25. It's the story of America’s decades-long quest to build a new arsenal of economic weapons—and how the 1990s heyday of globalization gave way to an age of economic warfare. More here:
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(20) The Russia oil price cap of 2022, on the other hand, is backed by the full weight of the G7. That alone is an impressive feat. /end.
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(18) The Biden administration deserves credit for doggedly pushing this policy and persisting against major headwinds. (I first wrote about it almost 4 months ago.) And the other members of the G7 deserve credit for being willing to take the risk.
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The first test of the price cap is whether Russia can ship all of its crude oil without G7 services. Early answer: No, it cannot. India-bound cargoes are still using G7 ships and insurance, with signed attestations. The result? Russian oil is trading at massive ~$40 discount.
Scoop🔥 by @xtophercook @OilSheppard who deployed some genius data tools to find that despite Moscow's protestations about the oil price cap. Russian crude is being shipped to India with western insurance - sth buyers can only get if they comply with cap.
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(1) First things first: Oil is the lifeblood of Russia's economy. In recent years, oil has accounted for 30-40% of the Kremlin budget. But sanctions have caused a 15% decline in Russia's non-oil revenues. The result is that oil is playing an increasingly essential role for Putin.
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. In the US, General License 8 already provides broad sanctions exemptions for energy-related transactions. Under this plan, the US would make access to GL8 conditional on material and consistent reductions in purchases of Russian oil.
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Can sanctions change Putin's calculus? (a short 🧵). By themselves, almost definitely not. But sanctions CAN play a supporting role. The central role is being played by brave Ukrainians, who have denied Putin a quick and easy victory. (1/4).
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(5) Overall, this is a strong statement. It signals unified intent to impose comprehensive sanctions on Russia. Details will matter. But the train has left the station: this statement will box in leaders to deliver major sanctions in the coming days unless Putin backs down. /end.
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(1) Step 1 should be a hammer blow against Russia's financial sector. What does that mean? Full-blocking sanctions against all major state-owned Russian banks. VEB, targeted on Tuesday, is the fifth-largest Russian financial institution. Sanctions on the others should follow.
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This is nothing to celebrate. It will be bad for Russians & the world. But the US & its allies are determined to show that invading neighbors and redrawing borders by force carries major costs—a message that (hopefully) will affect the calculus of other aggressors in the future.
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(4) These oil profits have cushioned the Russian economy amid a torrent of sanctions (though sanctions are still biting—Russia's economy is poised for a contraction of >5% this year). If you're looking for a reason Russia's economy hasn't yet collapsed, look no further than oil.
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As the EU weighs sanctions against Russia's oil sales, a question looms: What to do about non-EU buyers of Russian oil? . If China and India ramp up purchases of Russian oil, it could negate the impact of EU sanctions. Thankfully, the West can do something about it (🧵):.
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(2) To date, Western sanctions have not made a dent in Russia's oil revenues. While the US and several allies placed an embargo on Russian oil months ago, Russia has increased sales to China, India, and other countries, keeping the overall volume of its sales roughly constant.
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What will I be watching for? In addition to the details above, I'm interested if implementation is immediate or if there's a grace period (like w/the Sberbank measure earlier this week). To maximize impact, the allies should impose full-blocking sanctions with immediate effect.
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(9) Details will be hammered out in the coming months. But we do know that the G7 will prohibit the provision of all services (payments, insurance, financial services, brokering, bunkering, piloting, etc) for shipments of Russian oil that exceed the price cap.
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(2) If the US or Europe were to lay out conditions for sanctions removal *before* Kyiv reached a deal with Moscow, all it would do is box in Kyiv. That would be deeply counterproductive. Kyiv should have maximal flexibility in deciding what peace terms are acceptable.
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(5) We saw a similar phenomenon with Iran sanctions before 2012. From 2006-12, sanctions effectively froze Iran out of the global financial system. But the economy continued to grow. Iran's economy didn't fall off a cliff until the US rolled out global oil sanctions in 2012.
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From Day One in the White House, Trump has systematically undermined U.S. sanctions against Russia. To look back on the last 4 years and judge that sanctions "haven't worked" is to miss the point: Trump ensured they wouldn't work. My latest w/@maxbergmann and @jdlamond 👇.
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(14) Will Russia comply? The Kremlin has already threatened not to sell oil to anyone that complies with the price cap. But the costs to Russia of turning off the taps would be grim. Moscow cannot afford to go without oil revenues—even for a short time.
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(3) Russia has already been selling oil at a steep discount—>$20 lower than Brent prices. Yet global oil prices have been so high this year that the Kremlin's total oil revenues have remained substantial. Russia has earned ~$20 billion selling oil each month this year.
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(7) These sanctions will be cold comfort for Ukrainians under attack. They won't halt Putin's warpath. But they will exact a cost. They will be felt. And all of Russia will understand that Putin's imperial delusions come with a steep price. /end.
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(3) The statement also includes wording that puts Putin cronies on notice. It indicates the allies will take steps to ban the sale of golden passports to the Russian elite—particularly those connected to the Kremlin.
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@a1737399 No, it would not be stealing. The crime here is Russia's invasion of Ukraine and the untold destruction and suffering it has caused. Russia has already inflicted >$500 billion in damage to Ukraine; repurposing the frozen assets for Ukraine's reconstruction is both legal and just.
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(10) Firms that provide these services will need to submit an attestation that the underlying oil cargo complies with the price cap. If the US or EU catches any company misrepresenting the price or submitting a fraudulent attestation, they can impose sanctions on that company.
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I've been taking a break from commenting on current events as I finish my book. But I've been asked a lot about reports that Russia is now shipping oil without Western services and thus skirting the price cap, so I'm making an exception. My thoughts (🧵):.
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(5) My take is that shielding foreign investors is morally questionable, but giving Russia a realistic path back to global markets could increase the diplomatic value of sanctions relief. For now, I think the policy is sound. But the USG will need to reassess in the weeks ahead.
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(1) The US sanctions package will be very strong—at least an order of magnitude tougher than 2014. What does that mean? Not Iran-level sanctions (yet), but starting down that path: the largest Russian banks will be cut off from the US financial system . .
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(8) How will the G7 price cap work? For starters, there will actually be two price caps: one for crude oil, another for refined products. Implementation day for crude oil will be December 5 of this year, when the EU maritime insurance ban is set to begin and US GL-8C expires.
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Revamping global anti-corruption regulations to actually curtail Russian money laundering and stashing of ill-gotten gains would be a big deal. It will take time to do this. I hope the allies are committed to making it happen.
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The wording suggest a more scalpel-like measure, in which the allies prevent the CBR from deploying reserves to bail out other sanctioned entities. Yes, this would be a big deal. But it would not be as big of a deal as full-blocking sanctions on the Central Bank of Russia.
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The @washingtonpost reports Russian crude is now trading at $52/barrel—40% below Brent. As it finalizes the price cap this week, the G7 holds a strong hand. The idea that the cap needs to be $60-$70 to keep Russian oil flowing is clearly wrong.
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My guess is they included this warning to incentivize elites to distance themselves from Putin's war and perhaps to criticize it. What will I be watching for? How broad the list is. Most of Putin's closest cronies are already sanctioned. Will all billionaires be targeted?.
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(11) This threat of sanctions is the "stick." But the success of this policy will hinge even more on the "carrot"—the opportunities for China, India, and others to buy Russian oil at even larger discounts than they do today.
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The screws are tightening on Russia's economy. But there's more we can do to ratchet up pressure. It's time for the US and Europe to choke off Russia's oil sales—which still generate billions for Putin. My discussion with @Lawrence on @TheLastWord 👇.
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