September 30, 2023


BONN, Germany — Washington is willing to let a provision allowing Russia to make bond payments expire, U.S. Treasury Secretary Janet Yellen announced Wednesday — a move that increases the chance Moscow will default on its foreign debt.

The clause, which falls under the U.S. sanctions regime, has allowed Russia to service its foreign debt so far with the approval of the U.S. Treasury’s Office of Foreign Assets Control (OFAC). It’s set to expire on May 25.

“The expectation was for it to be time limited. It’s reasonably likely to expect that the license will be left to expire,” Yellen said, speaking to reporters in Bonn, Germany, ahead of a G7 finance ministerial meeting. “A final decision hasn’t been taken yet, but I think it’s unlikely that it would continue.”

Yellen also addressed the question of what the West can do about Russian oil exports — the subject of intense debate right now in the EU, which wants to include oil in its next sanctions package but has so far been stymied by Hungary’s resistance.

One approach, Yellen said, is to impose a tariff or price cap on Russian oil exports. “Oil and gas revenues are very substantial source of revenues for Russia,” she said. “We would like to do what we could to diminish those revenues.”

“Tariffs, price caps, other possibilities are on the table,” she added. “It’s important for Europe to make its best course but we continue to have those conversations.”

The catch is that the idea hasn’t gotten strong backing in Brussels yet.

​​Speaking Wednesday in Brussels, Economy Commissioner Paolo Gentiloni called it “quite an interesting proposal” but said the EU is still focused on an oil embargo. He added the discussion will resume in Bonn at the G7 meeting.

More broadly, Europe is divided on the alternatives to outright embargo. Italy is pushing for an oil price cap, while Germany is resisting the idea on grounds it will lead Russia to shut off its supplies. 

Beyond oil, Yellen commented on the debate over whether the West could expropriate Russian frozen assets to finance the reconstruction of Ukraine — an idea that the European Commission is exploring. German Finance Minister Christian Lindner also broached it in comments published Wednesday in Handelsblatt.

“It’s very natural that given the enormous destruction in Ukraine and huge rebuild costs it will face, that we all look to Russia to pay at least a portion of the price,” she said. But confiscating the nearly €300 billion of Russian central bank assets held outside Russia is “not something that is legally permissible in the United States,” she cautioned.

“Other countries have legal issues around this as well,” she said. “There really are a number of issues and conversations are only just starting.”

A similarly cautious tone was struck by Commission Executive Vice President Valdis Dombrovskis, speaking Wednesday in Brussels.

“First we do the legal assessment and then we decide on the next steps,” he said.

As for the assets frozen by EU countries as a result of sanctions against listed companies and individuals — which in April amounted to nearly €30 billion — Dombrovskis said such a move must “be done on the basis of criminal law” in each EU country. 


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