By Eric Vandenbroeck and co-workers

Putin’s Pressure Point: Congress Should Wield Oil Sanctions to Force Russia to Negotiate

A new U.S. president enters office vowing to reach out a hand to a bitter enemy. He pledges to resolve a long-burning crisis through diplomacy, despite widespread skepticism that it’s possible. When his early efforts stall, Congress, including members of the president’s party, loses patience and advances sweeping sanctions to break the impasse. European allies also grow frustrated and impose new penalties.

This is the story of the opening months of Donald Trump’s second term on Russia. After refusing to accept a cease-fire and intensifying attacks on Ukraine, Vladimir Putin has shown that he’s not interested in peace. Meanwhile, Republican Senator Lindsey Graham, of South Carolina, has secured over 80 votes for a bill to impose “bone-crushing sanctions” on Russia, enough for a veto-proof majority. The EU is preparing new sanctions, too.

But it’s also the story of the opening year of Barack Obama’s presidency on Iran. During George W. Bush’s second term, the United States steadily escalated sanctions on Iran. When Obama entered office, he pivoted to diplomacy, proposing an arrangement in which Tehran would part with its stockpile of enriched uranium in exchange for nuclear fuel. In late 2009, however, Iran rejected the proposal. Congress responded with wave after wave of sanctions, culminating in measures that devastated Iran’s oil revenues. European countries also stepped up and imposed an oil embargo. The combined pressure drove Iran’s economy into freefall, creating the conditions that ultimately brought Iran to the negotiating table.

With Trump’s Russia policy at a dead end, his administration would do well to learn from Obama’s Iran experience. A particularly important lesson is that congressional initiative, while almost always unwelcome by the executive branch, can be an essential ingredient to a successful economic pressure strategy. If Trump is serious about ending the war in Ukraine, his administration should work with Graham and other hawks on Capitol Hill rather than oppose them.

Another takeaway is that oil sanctions can work, even against major exporters. As the Trump administration explores options to ramp up pressure on Russian oil, it should study what succeeded against Iran.

A final lesson is that Europe has more agency than it often realizes. Although the EU has typically followed Washington’s lead on sanctions, the reverse can also be true: decisive European action can spur the United States to follow. As Trump repeatedly threatens sanctions and then retreats, Europe’s best move now is to act first and trust that the United States won’t be far behind.

 

Good Cop, Bad Cop

Upon becoming president in 2009, Obama inherited an Iran sanctions regime that, in some respects, resembles the sanctions Russia faces today. The Bush administration had imposed penalties on Iran’s largest banks and worked to sever its access to the global financial system and sensitive nuclear technologies. But it had stopped short of wielding secondary sanctions, penalties targeting Iran’s trading partners, or aggressively curbing Iran’s oil sales.

The result was underwhelming. Although Iran was increasingly isolated financially and its economy was sluggish, it never tipped into recession. The sanctions were falling short.

It was in this context that Obama made his first diplomatic overture. In fall 2009, his administration proposed a deal: Iran would ship most of its enriched uranium to Russia in exchange for enough nuclear fuel to power the Tehran Research Reactor, which produced medical isotopes for more than a decade. Although Iranian negotiators initially accepted the deal, they soon reversed course, and it collapsed within weeks.

Long skeptical of Obama’s Iran diplomacy, Congress took matters into its own hands. In the summer of 2010, it passed the Comprehensive Iran Sanctions, Accountability, and Divestment Act, which required the Treasury Department to impose secondary sanctions on foreign financial institutions that dealt with Iranian banks. Obama signed the bill, and it worked: even risk-tolerant banks in Dubai and Istanbul backed away from Iran, completing the country’s financial isolation.

The next year, Congress aimed at Iran’s last remaining link to the world economy: oil exports. Democratic Senator Bob Menendez, of New Jersey, and Republican Senator Mark Kirk, of Illinois, proposed an amendment to the National Defense Authorization Act mandating secondary sanctions on any foreign bank that processed payments with the Central Bank of Iran, the repository for all the country’s oil revenues. At the time, Iran exported roughly 2.5 million barrels of oil per day to more than 20 countries. When Obama administration officials studied Congress’s plans, they went into a panic. Their projections found that the sanctions could spike oil prices above $200 per barrel and cause a “nuclear winter recession,” as a senior Treasury official recalled. The Obama administration vehemently opposed the amendment, arguing that it risked splintering the transatlantic alliance, as multiple European countries still bought oil from Iran.

But then, in late 2011, Iranian militiamen stormed the British Embassy in Tehran, briefly holding staff members hostage. In response, the EU prepared its own oil embargo against Iran—deflating Obama’s main argument against Congress’s plans. Menendez and Kirk pushed the amendment forward. Days before a vote, Obama officials reached a compromise with the senators: countries that significantly reduced their oil purchases from Iran every six months would receive a sanctions waiver. They would be allowed to continue importing Iranian oil without facing secondary sanctions—but only if they wound down their purchases over time. Even with this revision, Obama urged the Democratic-controlled Senate to reject the amendment, still uneasy about the ramifications for oil prices. But it passed 100–0 and Obama reluctantly signed it.

To the administration’s surprise, the sanctions worked. Over the next 18 months, Iran’s oil sales plummeted by 60 percent, to around one million barrels per day. U.S. shale producers boosted production in turn, keeping the oil market balanced and staving off the price spike that Obama had feared.

Congress wasn’t finished. Next, lawmakers pushed legislation to try to drive Iran’s oil sales to zero. Again, Obama officials were wary. By then, only six countries were buying oil from Iran, and just one, China, was buying a sizable quantity. Strong-arming China to quit Iranian oil entirely was unlikely to work, and if Beijing called Washington’s bluff, the credibility of American sanctions could be permanently damaged.

Obama officials reached another compromise with Congress: foreign banks could keep processing payments for Iranian oil, but the funds had to remain in the buyer’s country, usable only for non-sanctioned trade. If a Chinese refinery bought Iranian oil, it would deposit the funds in a Central Bank of Iran account based in China. Tehran could use that money to buy goods from China or medicine and food globally, but it could not bring it home. Tehran could not, therefore, use the money to fund its nuclear program or bankroll its terrorist proxies. In essence, the scheme would compel the creation of escrow accounts, locking Iran’s oil money overseas.

The strategy worked even better than the Menendez-Kirk amendment. It allowed Iran to continue selling some oil, yet tens of billions of its petrodollars accumulated abroad. Deprived of hard currency, Iran’s economy spiraled. That pressure helped Hassan Rouhani win election as Iran’s president in 2013 and led to the negotiations that froze Iran’s nuclear program and culminated in the 2015 nuclear deal. In those negotiations, the ability to repatriate Iran’s escrowed oil funds was Washington’s most valuable bargaining chip.

Throughout this entire period, Congress was a thorn in Obama’s side. Yet Obama administration officials sometimes grudgingly acknowledged the upside of pressure from Capitol Hill. In 2015, while warning Congress not to “play the spoiler” in negotiations with Iran, National Security Adviser Susan Rice conceded that Congress had played a “hugely important role in helping to build our sanctions on Iran.” Later that year, in announcing that negotiations with Iran had produced an agreement, Obama himself thanked Congress for its role in crafting the sanctions. Congress had played the bad cop, forcing the Obama administration to go beyond its comfort zone and giving the threat of secondary sanctions serious credibility. Meanwhile, Obama had played the good cop, using congressional pressure to enable diplomacy.

A view of Gazprom Neft’s oil refinery in Omsk, Russia

 

A Failed Balancing Act

Since Russia launched its full-scale invasion of Ukraine in February 2022, U.S. sanctions policy has attempted to strike a delicate balance: maximizing pressure on Russia without disrupting the world oil market. This has been difficult, as Russia accounts for just over ten percent of global oil production, while hydrocarbon revenues contribute roughly a third of Russia’s federal budget. Russia plays a major role in the world oil market, and oil plays an essential role in funding the Russian government, including Putin’s war machine.

Initially, the United States attempted to balance these competing objectives by focusing sanctions on Russia’s banking and defense industries, leaving energy relatively untouched. On the very first day of the invasion, Joe Biden affirmed publicly that the sanctions were “specifically designed to allow energy payments to continue”, and his administration maintained a broad sanctions exemption for all energy-related transactions with Russia. In an economy already struggling with inflation, the prospect of skyrocketing gasoline prices was too frightening to hazard.

Over the next three years, Biden tiptoed toward oil sanctions but remained wary of anything that risked decreasing Russian supply. In December 2022, the United States and its G-7 partners imposed a price cap that aimed to reduce the revenue that Russia earned on each barrel of oil that it sold. Specifically, the policy barred Western tankers from carrying Russian oil and Western firms from insuring such shipments if the oil was priced above $60 per barrel. But the price cap was not backed by the threat of secondary sanctions, which had been so critical to the measures against Iran. When they bought Russian oil, Emirati traders and Chinese refineries faced no threat of U.S. penalties, even if they bought the oil at a price exceeding the cap. Russia exploited the built-in weaknesses of the policy, reducing its reliance on Western maritime insurance and amassing a large shadow fleet of oil tankers.

In his final weeks in office, Biden finally began dialing up the pressure on Russian oil, sanctioning Russia’s third- and fourth-largest oil producers, but it was too little, too late. As of today, despite frequent claims that Russia is the most sanctioned country on earth, it’s nowhere close: its top two energy companies, Rosneft and Gazprom, are not even subject to primary sanctions, to say nothing of Iran-style secondary sanctions.

Although Russia’s economy has struggled under sanctions, oil revenues have kept it afloat. It turned out there are hard limits to how much pressure Washington could apply to Moscow without targeting its most lucrative export.

 

Déjà Vu

Since returning to office, Trump has imposed no new sanctions on Russia. He has focused instead on diplomacy, pressuring Ukrainian President Volodymyr Zelensky to negotiate and insisting that Putin wants a deal. According to multiple media reports, Trump has pledged to keep Ukraine out of NATO and to recognize Russia’s annexation of Crimea. But he has made no progress with Putin.

Although congressional Republicans have remained deferential to Trump, their patience appears to be wearing thin. In the Senate, Graham has introduced legislation requiring the Trump administration to regularly assess whether Russia is refusing to negotiate a peace deal. (Senator Richard Blumenthal, Democrat of Connecticut, co-authored the bill.) If the administration determines that Russia is stonewalling, a wave of new penalties would automatically take effect - most notably, secondary tariffs of 500 percent on any country that imports Russian oil, gas, petroleum products, or uranium. In effect, the bill would impose embargo-level tariffs on a wide array of countries unless they halt Russian energy imports entirely, including China and India (Russia’s top oil customers), Turkey and Brazil (major buyers of Russian diesel), and the EU and Japan (significant consumers of Russian liquefied natural gas).

That threat is not credible. The world has already watched Trump struggle to sustain 145 percent tariffs on China for more than a few weeks, and most countries would probably call Washington’s bluff on a tariff threat several times higher. Besides, Russian energy exports cannot drop to zero overnight without triggering severe market dislocation. As a result, if the bill were enacted as written, Trump would most likely invoke a national security waiver and decline to enforce it.

But rather than oppose the bill, Trump should treat it as an opportunity to revive the good cop, bad cop dynamic with Congress that helped Obama secure the Iran nuclear deal. His administration should strike a compromise with Graham to replace the extreme tariff proposal with a more targeted oil sanctions regime, modeled on what worked against Iran. Under such a system, buyers of Russian oil would face secondary sanctions unless they meet two conditions: that their countries reduce total purchases every six months, and that payments are made into escrow accounts that Russia can use only for humanitarian imports.

There is good reason to believe this approach could work. With global oil supplies outpacing demand, there’s room to cut Russian exports without disrupting markets. Removing all of Russia’s crude exports from the market, totaling some five million barrels per day, is unrealistic, but a 20 to 40 percent reduction over the next year is achievable - and could even open the door for U.S. shale producers to gain market share, advancing Trump’s goal of American energy dominance.

Moreover, Chinese, Indian, and Turkish banks would likely comply with the escrow account arrangement. All of them have been cautious about U.S. secondary sanctions, and this system might even benefit them by boosting exports to Russia. If Indian banks can release Russian oil funds only to finance bilateral trade, for example, India’s sales of pharmaceuticals and agricultural products to Russia would likely increase, giving the country a reason to comply beyond the threat of punishment. And if the system succeeded, it would quickly give the Trump administration a massive pile of escrowed Russian oil funds to incentivize Putin to take concrete steps toward peace, such as accepting an unconditional cease-fire.

Just as the EU oil embargo on Iran helped spur action in Washington a decade and a half ago, major new EU sanctions on Russia could do the same today. Instead of waiting around for Trump, Brussels should advance new penalties on Russia’s energy sector. Even unilateral EU measures would tighten the screws on Moscow - and could prompt Washington to follow suit.

Most important, the EU should seize the more than $200 billion in Russian sovereign assets that are already frozen in Europe and channel them into support for Ukraine. Combined with hard-hitting oil sanctions, such a move would force Putin to reconsider his long-standing belief that time is on his side—that Western resolve will crack if he just waits long enough.

 

America Needs More Cards

Over the past four months, Trump has threatened to levy sanctions against Russia on at least half a dozen occasions. Each time, Putin has called his bluff and Trump has flinched. As Secretary of State Marco Rubio recently acknowledged, “the president’s belief is … right now, [if] you start threatening sanctions, the Russians will stop talking.”

Trump’s handling of Russia diverges sharply from his approach to every other country. He hasn’t hesitated to impose massive tariffs on China while pursuing a trade deal or to levy new sanctions on Iran amid nuclear negotiations. In most cases, he sees coercion as compatible with diplomacy. With Russia, he seems to believe that the two are mutually exclusive.

It’s time for Trump to rethink that strategy. As Obama learned in his push for a nuclear deal with Iran, diplomatic breakthroughs with hard-line adversaries require leverage. And the most effective way to gain that leverage, while maintaining negotiating credibility, is to coordinate with Congress.

Of course, it will be even harder for Trump to coax Putin into a just peace in Ukraine than it was for Obama to strike a nuclear deal with Iran. Putin has transformed Russia’s economy into a war machine and covets a decisive military victory more than sanctions relief. But that only underscores the need for more pressure. Without it, diplomacy is wishful thinking.

The moment is ripe. Congress is losing patience. Europe is growing frustrated. And the global oil market is better positioned to absorb disruptions than it has been in years. The stars are aligning for Trump to get the cards he needs to change Putin’s calculus. The question is whether he’s ready to play them.

 

 

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