“It will be very difficult to inflict serious economic damage on Russia without affecting energy markets,” said Edward Fishman, a former State Department official who is now a senior member of the Atlantic Council. “Oil and gas represent 40% of Russia’s federal budget. The United States and Europe can take steps in advance to contain the fallout, but if they plan to impose serious economic sanctions on Russia, they cannot avoid the energy sector entirely.

A source familiar with the matter said that “the options presented to the president would impose significant costs on the Russian economy and financial system.”

But the conundrum of how to structure sanctions shows how closely foreign and domestic policy can often be.

Additionally, the Biden administration’s relationship with its European allies could deter the White House from targeting Russian energy companies. Indeed, Russia is the largest exporter of oil and natural gas to the European Union and damaging this supply could have major consequences as winter approaches.

One option is to exclude Russian energy producers from debt markets if Moscow decides to invade, an action applied to some Russian energy producers in 2014 when Russian President Vladimir Putin invaded and then annexed Crimea. . But there is also a fear that Russia could retaliate against any sanctions by curbing its oil production and wreaking havoc on markets, an official noted.

“I think the risks of oil and gas prices being loosely pegged to oil would be a tough thing to sell in the domestic market,” said Julia Friedlander of the Atlantic Council, when asked about potential sanctions in the energy markets of Russia.

“Because it’s a publicly traded product, right? It’s not a direct issue of supply and demand,” she added. “I foresee that this is something that could turn our faces back, but you know, never say never.”

Officials from the State Department, the Treasury and the National Security Council meet regularly to work out options for sanctions and believe there is a way to craft high-stakes economic measures that will hurt Russia enough without upsetting the country. ‘international economy. Part of their strategy is to develop options for multiple rounds of sanctions, a senior administration official explained.

The first official added that the first tranche of sanctions would likely involve trade restrictions and target Russian banks and other financial institutions.

Another administration official added that the United States and its European allies recognize that severe sanctions “would entail some collateral risk” and will likely have an impact on European economies. But officials have said it is widely accepted that there are no longer any “scalpel-type” sanctions to be imposed that will effectively deter Russian aggression – and US allies understand that an invasion could be far more destabilizing. for Europe that a heavy blow for their economies. .

State Department number three Under Secretary Victoria Nuland said the United States was discussing the ramifications of the energy sector with its European allies. “This is part of what we are discussing with our allies and partners as we develop the sanctions packages, that we need to understand the exposure of allies and partners, but also the risks for Mr Putin and for his government,” Nuland said. Senate legislators. “As you know, energy is the cash cow that enables these kinds of military deployments. So Putin needs the energy to flow as much as consumers need it.”

Sullivan was unwilling to publicly detail the economic measures being considered by the Biden administration, but told reporters this week that the United States “is giving the Russians detailed information about the types of measures we have in mind.”

“I’m going to look you in the eye and tell you, as President Biden looked President Putin in the eye and told him today, that the things we didn’t do in 2014, we’re ready to do it. do now, ”Sullivan said.

The United States has the ability to craft tough measures because the global financial market is so dependent on the US currency and banks.

Maximum leverage

“The comparative power of the United States in the financial world so far exceeds anything the United States has in the energy markets or whatever,” said Brian O’Toole, a former Treasury official who is now a senior member of the Atlantic Council.

But experts stress that the Biden administration must play its strongest role in diplomatic conversations now, before it’s too late.

“The point of maximum influence is now, before Putin decides to attack Ukraine. If Russian troops pour in across the border and the West imposes sanctions, the game is already over. We’ve lost. We don’t want to come to that. That is why it is so important that the threat of sanctions is both serious and credible now. It needs to change Putin’s cost-benefit analysis of the invasion of Ukraine, ”Fishman said.

An adviser to Ukrainian President Volodymyr Zelensky echoed this assessment, telling CNN he believed imposing sanctions only after the invasion of Russia would be futile, and that at least some sanctions should be imposed as a precaution. to roll back Russia.

“Kiev’s point of view is that all potential sanctions in the event of Putin’s invasion have already been taken into account by Moscow and offer a deterrent value close to zero,” the adviser said. “However, the imposition of stiff sanctions now – with rollback provisions built in if Russia takes concrete steps to defuse – has a chance to work.”

This story was updated with additional details on Wednesday.