Sanctioning Russian Resources May Hurt U.S. More

By Daniel McGroarty

With Russia showing no signs of standing down in eastern Ukraine, the U.S. and European Union are looking for ways to ratchet up non-military options to compel a Russian recalculation in the region. Sanctions against some of Vladimir Putin's favorite oligarchs, we've been assured, are just the front-edge of our arsenal. We can hit Russia, with its one-dimensional resource-based economy, where it hurts.

As Treasury Under Secretary David Cohen testified earlier this month:

"On March 20, the President signed the latest [Executive Order], which authorizes the Secretary of the Treasury, in consultation with the Secretary of State, to sanction any individual or entity determined to operate in sectors of the Russian economy specified in the future by the Secretary of the Treasury, including the energy, metals and mining sectors."

The under Secretary deemed the new authority "a very powerful yet flexible tool that will allow us to respond quickly and meaningfully as events develop in Ukraine."

Leveraging resource access may indeed be a powerful and flexible tool, but in whose hands? Because the hard truth is that at some point, since the end of the Cold War, the U.S. became far more dependent on Russian resources than policy-makers may realize. So much so that any effort to expand sanctions to Russia's energy, metals and mining sectors could prove a case study in the dangers of U.S. resource dependence.

Start with energy: In 2013, the U.S. imported an average of more than 400,000 barrels per day of Russian oil. Zero that out, and it's an open question where replacement oil would come from. Vladimir Putin owes U.S. environmental activists a thank-you note for delaying Canada's Keystone Pipeline. With Keystone's 800,000 barrels per day, the U.S. could kick its Russian oil habit permanently. Without it, it's Russia that has the U.S. over a barrel.

And what about metals and mining? Treasury's sanctions squad may want to consult the work of another cabinet department: the Pentagon's 2013 National Defense Stockpile Requirements Report, as delivered to the House and Senate Armed Services Committees. A Russian metals supply disruption is one of the three risk scenarios studied in the report, with ample reason: Russia is a top three global producer of 20 of the 72 metals and minerals on the Pentagon study list, and is presently a provider of 46 of the metals to U.S. manufacturers. Russian metals -- from aluminum and antimony to zinc and zirconium ore -- are critical across a range of U.S. manufacturing and technology applications, including advanced weaponry.

Couldn't we offset suspended Russian resource purchases by buying more from China? To be sure, with the exceptions of a handful of metals -- the platinum group, rhenium and quartz crystal -- China produces nearly 40 of the metals the U.S. currently sources from Russia. But would China oblige? Not likely, as Russia and China have just completed a massive natural gas deal -- denominated, interestingly, not in petro-dollars but in rubles -- that will divert Russian gas from Europe to China, and more than triple Russian oil sales to Beijing. Apart from economics, China has its own reasons for assenting to Russia's annexation of Crimea, given its long list of territorial claims in the East and South China Seas. And in case the West has missed the message, Chinese leaders now indicate they're ready to help with Crimea's economic development.

But couldn't the U.S. meet its own resource needs? After all, we have known resources of more than 40 key metals and minerals -- many of them in Alaska, Seward's Folly or, as President Putin must think of it, the "greatest geopolitical disaster of the 19th Century." The problem is getting any of those resources out of the ground, as the U.S. currently ranks worst in the world for mine permitting delays. On average, it takes seven to ten years to bring a new U.S. mine through permitting and into production.

If Ukraine could only hang in there another seven to ten years, the U.S. might be able to use resources as leverage against a revanchist Russia sometime between 2021 and 2024.

For now, cross Russian resources off of your sanctions list. Whatever tools we may employ to extend protection to Ukraine and signal American opposition to Crimea's forced annexation, sanctions on Russian resources aren't likely to be among them.

Daniel McGroarty, principal of Carmot Strategic Group, an issues management firm in Washington, D.C., served in senior positions in the White House and at the Department of Defense.

(AP Photo)

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