Richard Nephew
Senior Research Scholar, Center on Global Energy Policy

Back on November 4, a raft of U.S. sanctions on Iran snapped back into force, six months after the Trump Administration withdrew the U.S. from the Iran nuclear deal. How Iran, U.S. allies, and U.S. competitors react to the stresses brought about by Trump’s decision will have far-reaching impacts for geopolitics, global energy markets and security, and financial markets.

On the latest episode of the Columbia Energy Exchange podcast, host Jason Bordoff discusses the guideposts to watch out for in this space over the next year with Richard Nephew, a senior research scholar at CGEP and the former Principal Deputy Coordinator for Sanctions Policy at the Department of State. In his prior role Richard was instrumental in designing the sanctions regime against Iran as well as the deal that lifted them, known as the Joint Comprehensive Plan of Action.

Jason and Richard recently sat down in New York to discuss the current state of sanctions policy against Iran, the practical aspects of enforcement given today's landscape, the role that India and China will play in determining the effectiveness of sanctions implementation, and many other issues. 

View the transcript

Jason Bordoff.  Hello and welcome to Columbia Energy Exchange, a weekly podcast from the Center on Global Energy Policy at Columbia University.  I’m Jason Bordoff.  Back on November 4th, a raft of U.S.  sanctions on Iran snap back into force six months after the Trump administration withdrew from the Iran nuclear deal.  How Iran and the United States and many other countries around the world react to that is gonna have far reaching impacts for geopolitics, for global energy markets and security and for financial markets.  It’s already been one of the factor that’s pushed down oil prices just recently after the administration granted waivers to many countries that purchase crude from Iran.  We wanted to go deeper into understand the situation with Iran, what the sanctions are gonna mean, particularly for the energy sector and there is no one better to do that with than our own Richard Nephew, a research scholar here at the Center on Global Energy Policy.  The former principal deputy coordinator for sanctions, policy at the department of state, he was instrumental in that role in designing both the sanctions against Iran as well as the deal that lifted them.  So, it’s fascinating to have a chance to sit down with leading experts on issues around the world even better when one of them is one of your own colleagues here at Columbia.  There is no one better to talk about this with than Richard.  And I encourage you all to check out his recent commentary on this issue that you can find on the Center’s website, if you’re interested in learning more.  Here is my conversation with Richard.  Richard Nephew, thanks for joining us on Columbia Energy Exchange.



Richard Nephew.  Thanks for having me.



Jason Bordoff.  We always try to talk about the most timely issues in the world of energy and ask the world leading experts to explain them to our listeners.  So it’s always even more of a privilege when we can do that with our own people here at the Center on Global Energy Policy.  So, few people know more about sanctions, broadly speaking than you having implemented them in government for a long time.  Studied them here now at Columbia.  The most prominent issue in the world of energy and sanctions collectively is probably what’s happening with Iran now.  This administration decided to pull out of the Iran nuclear agreement, an agreement that you were closely involved in putting in place if the prior administration announced that would happen on back dates 6 months in the future, that was November 4th, if I understand correctly.  So first just start explain to people what happened on November 4th and then subsequently there was announcement of that waivers, exceptions, being granted to certain countries.  We’ll come to that.  But what happened on November 4th?



Richard Nephew.  Well, basically on November 4th, the administration no longer continued the waivers that allowed all the various different pieces of sanctions relieve to flow out of the joint compensate plan of action.  And they re impose…



Jason Bordoff.  That’s the Iran deal, the joint comprehensive plan of action.



Richard Nephew.  That’s right.  Yeah, that’s right, that’s right.



Jason Bordoff.  In layman’s terms.



Richard Nephew.  Yeah, you know, it also decided to re impose sanctions that were imposed by executive order also on that same day.  So what does that mean in fact? What it means that as of the 4th of November, the U.S.  once again has restrictions on all sorts of financial activities with Iran, oil and gas investments in Iran.  Services being provided to Iran like insurance and shipping.  And they also re imposed designations and specific sanctions on hundreds of Iranian entities, including a lot of small fry, you know individuals and entities that were brokers and middlemen but also major banks in Iran.  Major companies in Iran like the National Iranian Oil Company.  So it kind of range the gamut of targets that could be sanctioned.  And from this point forward…



Jason Bordoff.  Designation means the kind of, that effectively puts them off limits in a sense from any financial transactions with them.



 Richard Nephew.  That’s right and that’s all pursuant to the 2010 Comprehensive Iran Sanctions, Accountability and Divestment Act or CISADA as that’s called which basically is the way in which we told the rest of the world, you know, I do business with these guys either.  U.S.  has a long had a comprehensive embargo.  But by doing this, the broad picture is that the sanctions picture against Iran is just as it was prior to the JCP Arabian negotiation, prior to the JCP Arabian and we are kind of back in 2015, in a lot of respects.



Jason Bordoff.  And ask about that.  Will you say, you mentioned the drivers of this which are congressional legislation, as well as White House executive orders.  And then you said we’re kind of back to where we were.  I think everyone listening to this will have some sense that, some understanding that there is a difference because a group of countries were working together previously in pursuit of this objective.  That’s not the case anymore.  So talk about the fact that the U.S.  is pursuing these sanctions independently now.  How is that different from before and what does that mean for their effectiveness?



Richard Nephew.  Oh, it’s very right and basically, you know, when I say, back to where they were, I mean, legally, I mean what are we actually have in terms of U.S.  legal obligations.  But from a practical perspective, actually making these sanctions do what they are intended to do, you know, trying address concerns that we’ve got with Iran whether or not we would agree that those are legitimate concerns or think this is the best way of doing it, you know, kind of to the side.  But the idea is that we are gonna use these sanctions to adjust our concerns.  That kind of concept is gonna be made much more difficult because the fact that the rest of the international community isn’t standing with us.  Back in 2013, we had the European Union, implementing its own sanction decisions, including a complete cut off in purchases of Iranian oil in 2012.  We had the UN Security Council passing four resolutions imposing civic and legally binding sanctions against Iran.  But in this administration, we haven’t even sought to re impose those sanctions even though we technical could and that means that we don’t have the UN’s backing behind this as well.  So, the practical picture, how we are actually going to get cooperation, that is much, much different in this administration and this run of sanctions that wasn’t in the past.



Jason Bordoff.  I want to ask you about the implications of that.  What does that mean for their effectiveness including but not limited to but energy, oil sales in particular.  But, I just want to be clear.  You said the purpose of them is to address our concerns with Iran.  Just be a little more specific about what that means because, you know, one of the criticisms of the Iran deal was there were other activities Iran was still engaged with.  The U.S.  administration did not agree with.  But the argument was this was more narrowly tailored to address specifically the nuclear enrichment program.  So was that, how should we understand that?



Richard Nephew.  Well, I think this is where actually, we still have some questions about the administration as well and what its intent is in using these sanctions.  But I think the common denominator which in the various factions, some who may believe in regime change and some who may believe in policy change into Iran.  Is that more pressure is necessary to do either of these things and I think for some, the idea is you apply lots more pressure and you can achieve lots more ends.  And Secretary Pompeo laid out back in May, 12 specific things that he wanted to see Iran do.  That the United States wanted to see Iran do.  They dealt with terrorism, they dealt with nuclear activities, they dealt with missiles and so on and so forth.  I think where the question has now emerged is, is it possible to get Iran to negotiate a solution to all these various different problems.  Well sanctions actually take us there or is it never really gonna be possible to achieve that kind of diplomatic outcome with the Iran that we have right now.



Jason Bordoff.  What’s being asked of them if they want to see sanctions lifted, that’s the question.  And is that regime change, you believe for this administration?



Richard Nephew.  Well, this is where again, the administration itself is divided.  You know, there are some that have said, no we are open to a new negotiation including pursuing a treaty with Iran that would address all these other concerns.  But I think that for others in the administration, they may be willing to allow this discussion to go on.  _____ [00:08:05] himself has already said that he supports a diplomatic process but only as a way of essentially trying to sell the rest of the world that we are serious incredible not because he actually thinks that we are gonna get an outcome that would be acceptable to the United States.  And I think, he would be my poster child for what’s leading the regime change caucus inside this administration that believes that even if we could get an agreement, it’s never really going to be sustainable with this Iran.  That you need to have a different Iran to negotiate with.



Jason Bordoff.  Now and I want to come to energy in a second.  But just finally on this, the Iran deal as originally crafted by the Obama administration intended to have insure that there was compliance on Iran’s part with dismantling their nuclear program.  What do we know about their compliance? Where they are complying with the Iran deal? You’re not an objective observer.  You are strongly in favor of the Iran deal.  You have criticized its withdrawal as I want your view on where they are complying and even among people who disagree with you and don’t think the Iran deal was a good deal.  Is that a matter of contention or is there broad agreement that they want compliance?



Richard Nephew.  I think there is broad agreement they were in compliance and fortunately here we have an international atomic energy agency which is actually tasked with verifying Iran’s compliance with the nuclear provisions and they have issued multiple reports since the implementation of this agreement and even before that saying that Iran is in fact complying with its terms.  There is agreement that there are some places where there were questions about this.  For it’s doing with heavy water, centrifuge related research and development activities back in the early part of implementation.  But even here, there have been agreements made between Iran and other members of the JCP negotiate group that have clarified what Iran’s responsibilities would be.  In fact, they have said the most opponents now are even may taking the argument, yes Iran is complying but that’s only because it was such an easy deal for them to comply with and that in fact compliance is in their long term interest because then they will get a free and clear nuclear program.  So compliance in my view is not actually an area of contention.  Really, the area of contention is was the underlying agreement good enough from the first place and second was it good enough for the fact that some major provisions were gonna expire.  And ultimately now at this point, we’ll never know where they are at their original agreement was good enough because now U.S.  has introduced such a major change in Iran’s compliance expectations, their compliance requirements and it's the world’s expectation.



Jason Bordoff.  Let’s talk about that and the reason energy center cares about this which is that as sanctions as we’ve seen from Iran to Russia to other countries can matter a lot for energy.  Investment in Iran’s energy sector is sanctioned.  So total interest in developing the gas fields, things like that.  Those companies have walked away for now.  And then of course, the purchase of Iranian oil is being sanctioned and so the oil market in particular has been speculating for months about how much oil will come off the market.  The administration sent signals that they were gonna take around to zero and they would be even harder lined than the Obama administration.  So, and then they announced shortly after snap back that they had issued waivers to a variety of countries.  So just for people, what the law requires and how the significant reductions work and then what did the administration do when they issued these waivers and what does it mean for how much Iranian oil you think is coming off the market or has come off the market?



Richard Nephew.  Sure.  Yeah, the underline is the fiscal year 2012, National Defense Authorization Act, NDA and for international listeners, it may seem very strange that Iran sanctions defense appropriation bill but this is actually fairly common.  It’s a way of getting otherwise controversial legislation through the legislative process as quickly as possible.  And that’s where these sanction were _____ [00:12:04].  But they essentially require is two things.  One that the president be willing to certify that international oil markets are sufficiently supplied that we could stand a loss of Iranian oil which the president was able to determine in late October.  And second, that countries around the world reduce their purchases of Iranian oil on a regular schedule of every 180 day evaluation or run the risk of their banks losing access to U.S.  financial system.  That’s really what it boils down to.  And so from a process standpoint, what the administration started to do in May and continue throughout the summer was to talk with all those importers of Iranian oil about how much they were buying and how much less they needed to buy to avoid their banks being subject to U.S.  sanctions.



Jason Bordoff.  And to be clear, the administration has discretion about how quickly countries need to ramp down their purchases to be in compliance and then I presume, you tell me is motivated by a sort of effort achieve the objective of sanctions whether you agree with them or not the objective is to impose run without inflicting pain on ourselves at the same time by jacking up the oil price.  So depending on market conditions, and other factors, the administration has discretion.



Richard Nephew.  That’s right.  The law actually just requires, what’s called a significant reduction but you define significance and I think that for this administration, they were looking at the president, which was the Obama administration and what we were able to achieve.  We in our time had determined a significant reduction to be 20% by volume every 180 days.  It was a decent number.  It was set in part by some _____ [00:13:40] by senators Kirk and Menendez after a law was passed about what they had as their expectation.  But the idea was that 20% every 180 days was a reasonable amount of oil to take off the market.  It will allow production to come back online.  I think for this administration though, they weren’t satisfied with just doing what Obama had done.  And I think this is part of the reason why they started off with zero being their demand.  Wanting to go as _____ [00:14:05] as they possibly could go.  But I think over time they were made aware of the oil market realities and the fact that going to zero was not an acceptable outcome for the international oil market.  And so instead what they had to do was essentially do what we do which was go back into the tough negotiations of how much can you give me from all the various countries that were still buying Iranian oil and then trying to make their reduction threshold maybe a little bit higher than what we had achieved.



Jason Bordoff.  And, sorry, just to be clear.  When you say their reduction, what can you give me, one question I presume, there were discussions going on in the administration, I would think is share this publicly about what they expect to see six months from now but the actual exception, the waiver is given for reductions over the prior six months.



Richard Nephew.  That’s right.



Jason Bordoff.  And so for, you know, there was a lot of disagreement about country, the governments often push back and said, we don’t care that the U.S.  is doing this.  We disagree, we disagree but companies face these sanctions.  So the companies, often big on the side of caution and so what have we seen over the last six months that in your mind might qualify for these exceptions.



Richard Nephew.  Well, we’ve definitely seen some major reductions by people who are doing the imports.  So if you look at a country level which is how the sanctions actually assess, South Korea, Japan for instance had well more than 50% reductions in their purchases from Iran over the previous 180 day period.  If you look at Turkey…



Jason Bordoff.  And when you give those numbers, that’s the last average of the last six months compared to the average of the prior six months?



Richard Nephew.  That’s right, that’s right.  In Turkey, I would say have done essentially the same thing.  Maybe a little bit less than 50%.  Maybe in the range of 30 to 40%.  And again the numbers are all a little bit squishy here and we are all still trying to catch up a little bit with what the final October numbers were in particular.  With regard to India and China, the numbers are a lot more difficult.  In part because they had substantially increased their purchases of Iranian oil in the previous six months.  You know China had gone up as high as 800,000 barrels per day in their purchases whereas their normal average was around 600,000 barrels per day.  India had gone up to about 600,000 barrels today even though their average is more like 300,000.  So, this is one of the big question marks I have about this process going forward.  They did probably achieve significant reductions, maybe even as high as 50%.  In India’s case may be as high as 20%.  In China’s case over the previous 180 day period.  But that was inflated previous 180 day period which tells me that those were easier barrels to get.  The real question is what’s gonna happen to those reduction requirements now because we have to go through this all over again by May 3rd.  And the next sort of barrels to come off from India, from China and yes even from Turkey, South Korea and Japan are harder barrels to take off.



Jason Bordoff.  And these, you know, I think, tell me, if I remember your off frequent insightful writings accurately were of the view that, you know, sanctions were effective last time because a group of nations worked together in pursuit of a common goal.  That would be much harder to achieve would be doing this alone and so, I think you were of the view that we lose some Iranian supply but maybe not that much, half a million barrels a day or something.  Now, as you said, it depends on which months, you choose and how you pick the numbers but current Iranian exports versus a high point six months ago is about a million barrels a day.  Have these been more effective than you thought they would be?



Richard Nephew.  They have, they have.  And that’s in part because I’ve thought that what Europe would do actually was this either they wouldn’t have a legal requirement from EU that European companies would want to respect U.S.  you know sanction risks and so therefore make their own reductions.  But I have assessed that they were instead pursued 20% or significant reductions but not go all the way to zero.  Instead, a lot of European companies frankly said the sanctions compliance problems, having to deal with the headaches of sanctions is simply not worth continue purchases from Iran.  So, if that instance alone, I have assessed that there was gonna be maybe half of Europe’s purchases about 600,000 barrels down to 300,000 barrels.  But instead, actually Europe has gone pretty close to zero.  Hasn’t gone to zero.  Italy and Greece notably got exceptions to the sanctions.  But that is just one example of kind of more oil that the administration was able to take off from market than what had previously been assessed.  But, you know, ultimately this takes Iran down to about 1.2 million barrels per day to 1.3 million barrels per day in exports at this point forward.  And now really, it’s a question of, are we going to see another million barrels come off Iran between now and May.  That seems fairly unlikely.  So what is the number? And what does this administration’s approach gonna be if India, China and others are unwilling to make the kind of steep cuts they were prepared to make in this first instance.



Jason Bordoff.  So that there is obviously the huge question, I’m gonna say a million dollar question.  But there is probably a lot more at stake in commodity trading on that question.  And we’ve seen a stunning turnaround in a remarkably short period of time from the oil price running up in part because of tough talk about how much Iranian oil will come off the market to a sharp reversal in part because these waivers with many other factors too.  So imagine, OPEC getting together, December 6th and need to decide how much oil if any to take off the market and a big uncertainty is what’s gonna happen in the next 6, 12 months with Iranian oil exports.  So I presume the Saudi and Russian energy ministers are listening right now.  So what would you tell them about what’s gonna happen with Iranian oil exports and production?



Richard Nephew.  Well, I certain think there is gonna be more cuts.  There are gonna be more cuts coming from Japan and from South Korea.  There is gonna be more cuts coming from Europe.  There may be more cuts coming from Turkey.  So, you know, I think you can reasonably argue that another 200 to 300,000 barrels of imports from Iran or probably gonna be cut over the next six months, in aggregate, if you take all these different purchases together.  I’m much more skeptical, you’re gonna see deep cuts from India or deep cuts from China.  I think, India for its part.  They’ve got elections coming up in April and they are not really attracted to the idea of cutting off supply of relatively cheap oil especially with all the discounts that Iran is prepared to offer India.  I don’t think prime minister Modi is very interested in making deep cuts right now.  And so, it may just be that India makes very marginal reductions.  Maybe even to the tune of only 50,000 barrels per day of reduction but maybe even a little bit more than that, if he feels, he must.  But this again, there is gonna be a complex process of negotiations within the Indian oil industry.  China to me more than anything is the big question mark because I can see them potentially going up or going down depending on what happens with the broader U.S.  bilateral agenda.  There is always these whispers coming up Washington that there maybe a trade deal in the offing between the United States and China may involve sanctions.  But there is also whispers about the United States and China going up for even tougher trade war between one another.  And then in those instances, you can easily see China deciding to step up by buying lots more Iranian oil or trying to address the problem by reducing and I think from that perspective, it’s hard for me to see Iranian exports getting below 800,000 barrels per day.  That’s kind of where I would set my bottom threshold between now and May.  But I wouldn’t say it’s impossible for them to go lower or to stay much closer to a million.



Jason Bordoff.  Yeah, and as you know, most of the energy center was often China last week and a variety of senior level meetings and then certainly left with the impression that China was not planning to comply and take more and reduce Iranian purchases.  But you take that with a grain of salt partly, that’s what you would expect them to say and also partly as you said, this gets caught up in lots of other issues.



Richard Nephew.  That’s right.



Jason Bordoff.  And do we see concessions here because there is something else happening in the trade conflict or something else.



Richard Nephew.  That’s right.  And one of the interesting things from the Obama experience, you know, the Chinese never agreed to implement our sanctions.  In fact, they’ve always said that they would never implement our sanctions but we have had enough other bilateral issues that they did things to try and work with us and we saw reductions even if they wouldn’t admit them.  The bilateral relationship is just different now.  And I think it’s much harder to see the same kind of conciliatory approach being taken by China, especially if the trade war intensifies.  The flip side of that of course is that things are much more transactional now.  It’s much easier to see China being prepared to make offers to the administration that this administration will accept the previous one might not.



Jason Bordoff.  And I want to move on to one or two other countries but sanction issues but just finally on Iran, one of the other ways in which the sanctions could affect the energy sector and oil prices in particular because I don’t hear as much about is how Iran responds to all of these.  So Iran, you know, feels like, the U.S.  has wronged them by pulling on this agreement and they were in compliance.  They have a domestic political constituency to respond to that if they feel their back is up against the wall economically.  What do they do? Do they go into the straight of all moves and try to disrupt supplies? Do they create more mischief in Yemen or Syria with Hottie rebels like what do you think their response will be and what might that mean for regional stability?



Richard Nephew.  I think the Iranians have got three kind of axis of response that they can proceed along.  The first and most direct is the JCP compliance on their part.  Whether that they are continuing with the nuclear restrictions already in place.  I think for the Iranians, they don’t really see the benefit in withdrawing their cooperation from the JCP array.  They don’t see is that helps them with the Europeans.  They don’t see that it helps them with the international public opinion.  I think they are gonna try and resist the temptation to reverse course in the nuclear concessions that they’ve made unless they feel like they just have no other recourse.  And that might be coming soon especially if Europe isn’t able to work with the Iranians to restore some of the economic connectivity that’s been lost with the in position of U.S.  sanctions.  I think the second axis they get to respond is within the region and Iran’s traditional response when it feels threatened is to try and make someone else feel threatened.  And especially with the raft of crisis that they can exploit whether in Syria, in Yemen or across the gulf or frankly new problems that can potentially emerge.  And I think the Iranians are gonna be looking to even up the score.  Frankly it helps them domestically because if they can’t respond in kind of nuclear grounds, it maybe easier politically for them to reconcile themselves to responding in the region.  But, I think the third issue is that the Iranians are just gonna be trying to evade sanctions as much as they possibly can.  And they are gonna be looking to take as much advantage of opportunities to do that whether through illicit trade, whether through smuggling roots, whether through offering discounts and other mechanisms.  The Iranians are gonna try and get out from under this in the way that they have always have and I think the real question then is how much cooperation do they have from our erstwhile partners in Europe as well as other countries because if it’s substantial that can really damage and undermine sanctions.



Jason Bordoff.  So let me hand that for a minute because it was a really important question.  You said, you know, there would be countries like China and India that might not comply.  So what happens then people are not in compliance, presumably six months from now, sanctions would then be imposed.  What does that mean for the outlook for Iranian exports and production? How easy is it to find evasion techniques if the sanctions are enforced? How much can people find other parts of their financial institutions that are not exposed to sanctions? What are the implications of non-compliance for Iranian production?



Richard Nephew.  Well for Iranian production actually non-compliance could be a _____ [00:25:46] to be honest.  If China and India are prepared to run the risk of U.S.  sanctions being imposed, that in one sense frees them because then there is nothing else bad that can happen in terms of access to the U.S.  It’s already been curtailed in terms of access to U.S.  finance.  It’s already been curtailed.  And so from that perspective, you know, the Iranians might even be happy, if their partners are being subject to sanctions because then that frees them to be willing to do a lot more business with Iran than they might otherwise be prepared to do.  And I think this is where for the U.S., they have to tread here as well.  And it’s part of the reason why these exceptions were granted even though they didn’t get their zero imports.  They recognize, I think in the administration their goal is not to sanction Chinese banks.  Their goal is not to sanction Indian refineries.  Their goal is to keep the pressure on Iran and if they have to impose sanctions on Chinese banks, if they have to impose sanctions in the Indian refineries, they potentially run the risk of actually freeing them up to do more business that puts money back in the hands of the Iranians.  And I think this is why it won’t be so easy for the administration to do that.  I will say though this to me is part of the reason why 2019 is gonna be so dangerous and turbulent and it’s because there is going to be a sense of sanctions fatigue especially for the Trump administration if they don’t see major changes in Iran’s position.  You know, there are people right now, who say that the Iranian regime is about ready to collapse.  If they don’t see a collapse by May, are they going to think sanctions have failed and they need to choose other tools.  Sanctions have failed because we are not being tough enough.  So there is a lot that’s gonna go into U.S.  thinking in this and readiness to potentially escalate pressure on partners through sanctions or on the Iranians themselves that could make the situation much more unstable.



Jason Bordoff.  We’ve used most of our time to talk about Iran which is fine.  That’s the topic of this podcast.  But I did want to ask you about Russia especially democrats taking the house of representatives, Russia’s political hot button issue now.  Do you expect further sanctions against Russia and might that mean for the energy sector?



Richard Nephew.  I absolutely think more sanctions are gonna be pushed by house of democrats and I think there is gonna be support amongst congressional republicans as well.  The key question is, now that the senate looks to stay in republican hands, the house is going to go in democrat hands, how much the administration can negotiate both with democrats and republicans to lighten the intensity of the sanctions that otherwise might be forthcoming and I think what that will primarily look like are a set of very tough sounding sanctions with lots of administrative flexibility.  Waivers and discretion being granted to the president.  And that frankly gives the democrats, the ability to say we passed tough measures in the whole administration to account, gives the administration congressional republicans ability to say, we have these sanctions and we’re gonna use them as intelligently as we possibly can.  I think in terms of scope, there is gonna be attention paid to the energy sector.  There is gonna be attention paid to financial sector to all that guards the defense sector.  But I think that, the degree to which there is flexibility in administrative discretion is going to potentially limit how much the sanctions actually affect all of those sectors.  Since no one I think believes that the Trump administration is inclined to really drop the hammer on Russia, certainly having done that today.



Jason Bordoff.  And talk a little, so originally the sanctions against Russia were on the energy sector on oil and gas were designed to affect long term future production.  Unconventional, shale, ultradeep water, the Arctic.  Not sanctioning current energy exports in part because they weren’t until recently, the largest oil producer in the world, the U.S.  just passed it but that has huge consequences for global oil markets.  How do you expect that balance to be strucked and are we gonna see investments, sanctioned activities include current investments, current production, current potentially exports.



Richard Nephew.  I certainly think we could see that and I think if you look at the _____ [00:29:39] sanctions _____ [00:29:40], that was introduced back in July.  If you look at Steny Hoyer and the house and his sanctions bill that was also introduced in July.  You see pieces of legislations that would start to affect current production including going after any support being provided to Russia for the development or extraction of crude oil anywhere in Russia.  That will include, you know, current projects.  But I think the structure that may emerge is one that’s very similar to the Iran sanctions act and the Iran Libya sanctions act of 1996 in which you’ve got a permissive sanctions regime where the administration is permitted to impose sanctions on anyone engaged in investments above a certain monetary or technological threshold.  But is not required to do so and that would have pressure currently on companies that might make the decision that they don’t want to be at risk but it wouldn’t necessarily go all the way in terms of directly targeting current production.  And so my own expectation is the immediate oil market impact of all these is gonna be fairly marginal.  It’s not gonna take ongoing production of barrels off the market.  But it’s going to chip away further at Russia’s future production.



Jason Bordoff.  How much impacts do these have on production currently or in the future? How much do you think Russia has been able to find either ways around it or develop their own internal capacity in the service sector? The Russian oil and gas sector today is doing pretty well though collapse of the ruble helps to explain that but you know, sanctions have a purpose to impose economic pain.  Do you think that’s being achieved currently with the sanctions against Russia?



Richard Nephew.  I think there certainly has been economic.  I think that if you look at Russia, you know, today, they are not able to do the same sorts of things they could do before the sanctions were imposed.  They can’t import as freely as they were.  They are in a much more significant currency restrictions than they were.  And they have to make the spare ruble that they have bounce a lot farther.  I think they’ve also found their long term _____ [00:31:33] their long term production capacity is constrained and I think that hasn’t yet bit but it wasn’t intended to bite just yet.  I think this is where this next step in sanctions is going to potentially bring that damaging horizon much closer.  By starting to go after things that are much less in the distant future like Arctic.  Instead start to focus on any kind of new or ongoing investments that are happening inside of Russia itself and I think for a lot of companies they may prefer to run the risk of some short term investment but are they gonna be prepared to make the long term investment that Russia really needs to in order to keep that same kind of activity going.



Jason Bordoff.  Richard, thanks for providing all the insights you do to all of us here at Columbia and thanks for making time to join us on Columbia Energy Exchange to talk about these issues.  I’m sure, there will be much more to talk about and have you back six months from now and talk about where the waivers are and where production is if not before.  Thanks to all of you for listening.  Until next time, I’m Jason Bordoff.  For more information about Columbia Energy Exchange and the Center on Global Energy Policy, visit us online at or follow us at Columbiauenergy on social media.  We’ll see you next week.