[DOWNLOAD THE FULL COMMENTARY HERE]

 

On January 10, 2017, a bipartisan group of 10 U.S. senators introduced new legislation (known as S.94) that would impose statutory sanctions against Russia with respect to its cyber activities, particularly their involvement in the 2016 U.S. elections, their interference in the internal Ukraine crisis, and their continuing role in the Syria conflict.

In a new commentary from the Center on Global Energy Policy, researchers Richard Nephew, Dr. Tim Boersma, and Dr. Tatiana Mitrova assess and analyze the potential impact of the legislation, potential responses to its adoption by Russia and the broader market, as well as the likelihood of its passage in Congress.

The authors first outline the U.S. President's considerable executive discretion over the legislation and how it could be enforced. They then address what impacts S.94 would have on Russia specifically, noting that the Russian economy would face tremendous damage. While Russia would still be permitted to sell oil and gas, Russia’s foreign partners would have to decide whether their investments and activities in Russia are sufficiently profitable so as to be worth the risk of effective exclusion from the U.S. market.

They note that the immediate impact on global energy markets would be marginal, linked to enhanced perceptions of overall risk. However, if Russia responds by cutting off or curtailing oil and gas supplies, market effects could be considerable as Russia is responsible for roughly 35 percent of Europe’s natural gas and 30 percent of Europe’s crude oil.

Though it seems plausible that some new form of Russia sanctions will pass Congress, the authors indicate it is unlikely S.94 will pass, noting that this legislation will raise concerns from foreign policy experts, business interests, as well as from governments in Europe, Asia, and Russia itself. They also cite Trump’s continued calls for closer relations to Russia as a deterrent to passage.

Finally, the commentary asserts that it is hard to tell how the international community would react. European countries afraid of Russian intervention could welcome sanctions legislation and Middle East oil and gas players would view it as a positive development to improve their own position in the sector. However, countries dependent on Russia for their energy security, or those fearful of what the Russian government could do in response to harsher sanctions, could react negatively and reject the sanctions.