The Biden administration is actively working to maintain stable gas prices ahead of the upcoming election by ensuring a steady flow of oil into global markets. This objective, however, is at odds with another key priority: exerting pressure on adversarial nations such as Russia, Iran, and Venezuela. This policy conflict has led to the implementation of softer-than-anticipated sanctions on major oil producers, according to diplomats, former government officials, and energy-industry insiders briefed by current officials.
A recent example of this softer stance was seen on Tuesday when the U.S. imposed new sanctions on Iran. These sanctions targeted a fraction of Iran’s oil exports and were designed to avoid significant disruptions to global markets. A senior administration official emphasized the importance of keeping gas prices low for American consumers, noting that it is a priority for President Biden as it directly impacts families’ daily lives.
Despite heightened tensions between Iran and the U.S. following the October 7 attacks on Israel by Tehran-backed Hamas, Iran’s oil exports have exceeded 1.5 million barrels per day since February 2024. This is a significant increase from the start of the Biden presidency, with most of the oil being sold at discounted prices to small Chinese refineries.
John Smith, a partner at Morrison Foerster and former head of the U.S. Treasury Department’s Office of Foreign Assets Control, noted that the U.S. and its allies have been cautious not to impose sanctions that would severely impact Western economies. This careful approach is evident in the recent sanctions that targeted Iranian oil trade networks but left the broader market largely unaffected.
When the U.S. imposed sanctions on Russia over its actions in Ukraine on June 12, the measures focused on banks rather than the oil industry, to avoid disrupting global oil supplies. This cautious approach has caused frustration among some Treasury Department staffers, who believe more could be done to target oil-trading networks ferrying Russian and Iranian oil.
Supporters within the administration argue that these measures are carefully balanced to keep prices low while reducing profits for Russia and Iran. A senior Treasury official explained that the goals of lowering costs for American consumers and reducing the Kremlin’s profits are aligned.
An example of this balancing act was seen when the Treasury imposed sanctions on Russia’s state tanker company Sovcomflot. Exemptions were made for all but 14 of the company’s 91 ships, signaling to traders that it was still permissible to do business with most of Sovcomflot’s fleet, thus minimizing market disruptions.
The National Economic Council, led by Lael Brainard, and other administration officials have expressed concerns that broader sanctions could cause logistical problems in the oil market and increase inflation. Analysts have noted that rising oil output from sanctioned countries has helped lower crude prices from their earlier highs.
In another instance of balancing foreign and energy policies, the U.S. asked Ukraine to cease drone attacks on Russian refineries, which had unsettled global diesel and gasoline markets. The average price of a gallon of gasoline in the U.S. was $3.44 earlier this week, similar to a year ago but significantly higher than four years ago, according to the U.S. Energy Administration.
The recent sanctions on Iran targeted companies in the United Arab Emirates and Hong Kong that facilitate payments for Iranian crude. Analysts believe these measures will have a limited and temporary impact on the oil market, as new shell companies and supply chain adjustments can be made.
In the case of Venezuela, the U.S. eased sanctions last year conditional on fair democratic elections, allowing Western oil producers to tap into the country’s reserves. Venezuelan crude exports have increased by 5% this year. However, the U.S. did not renew a general license for companies to operate in Venezuela after the country’s highest court upheld a ban on an opposition leader’s candidacy in January. Despite this, the administration has approved special licenses for major commodity traders to ship Venezuelan oil.
Bob McNally, president of consulting firm Rapidan Energy Group and former White House policy official under George W. Bush, noted that preventing spikes in gasoline prices is a major concern for any American president, especially during an election year.
American oil-diplomacy efforts have also been focused on Iraq, where a State Department delegation visited Erbil to try to reopen a pipeline connecting the oil-rich Kurdistan region to a Turkish port. This pipeline, partially owned by Russia’s Rosneft Oil, has been blocked due to a political dispute since early 2023. Reopening the pipeline is seen as crucial for providing non-Russian oil supplies to global markets, especially Europe.
In summary, the Biden administration’s efforts to keep gas prices stable ahead of the election have resulted in a careful balancing act between imposing sanctions on adversaries and ensuring a steady flow of oil to global markets. This approach aims to avoid significant disruptions to the oil supply while maintaining pressure on nations like Russia, Iran, and Venezuela.