U.S. Sanctions on Russia and Chinese Banks

By David Lawder and Andrea Shalal

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen informed Reuters on Friday that the U.S. is considering additional sanctions on "dark fleet" tankers and will not rule out imposing sanctions on Chinese banks, aiming to reduce Russia's oil revenue and access to foreign supplies to support its war in Ukraine.

Yellen indicated in the interview that the U.S. and its allies might contemplate lowering their $60-per-barrel oil price cap on Russian oil, which currently restricts Western insurance and maritime services on shipments exceeding this price.

The Treasury has previously sanctioned specific tankers and their owners for operating above the price cap and is prepared to take further action in this realm, as Yellen noted there are many possibilities on the table before she departs from office in five weeks.

> "There are a number of possibilities here. We don't preview sanctions, but we're always looking at oil revenues and if we can find ways to further impair Russian oil revenues, that would, I think, strengthen Ukraine's hand. That remains on our list," Yellen stated.

Earlier this week, Yellen mentioned that the softness in the oil market provides an opportunity for more sanctions, with benchmark Brent crude priced at $74.50 per barrel on Friday compared to $85.57 when the cap was set in December 2022.

The Biden administration is racing to secure support for Ukraine before President-elect Donald Trump takes office on January 20, amid Trump's repeated concerns about the cost of U.S. support for Ukraine.

CHINESE BANK CONCERNS

U.S. Treasury officials continue discussions with their Chinese counterparts on identifying financial institution activities potentially facilitating transactions linked to Russia's war efforts. Yellen highlighted that these dialogue efforts have been bolstered by two years of rebuilding U.S.-China economic and financial communication.

> "I absolutely would not rule out the possibility we would sanction an individual bank if we had the necessary level of … evidence to be able to put sanctions on," she said, adding that discussions with larger Chinese banks have made them "very wary" of sanctions that could cut them off from dollar-based transactions.

In an executive order a year ago, Biden granted Treasury the authority to impose secondary sanctions on financial institutions that aid war-related transactions. As Russia's economy increasingly revolves around military production, it becomes more challenging to differentiate between purely commercial and war-related activities.

> "Authorities in China recognize that our use of these sanctions would be a serious threat with very adverse consequences," Yellen noted, highlighting that while they want to trade with Russia, they do not wish to see their banks sanctioned.

COMMUNICATION CHANNELS

Yellen stated that the concluding meeting of the U.S.-China Financial Working Group will occur next week in Tianjin, China, although sanctions will likely not dominate the agenda. Instead, the focus will be on financial stability issues, including "tabletop" exercises on potential financial crises.

Yellen emphasized the importance of maintaining open communication channels with China, asserting that deeper relationships must be cultivated beyond just leader-to-leader meetings. While the discussions have not shifted China's export-driven economic model, they have provided an avenue for the U.S. to explain actions like imposing steep tariffs on electric vehicles.

In response to a Reuters report on potential currency weakening by Beijing to counteract Trump's tariff plans, Yellen remarked that China had recently been moving in the opposite direction, strengthening the yuan against the dollar. She withheld detailed comments on Beijing's currency strategy but noted that the U.S. Treasury possesses tools to strongly respond to any currency manipulation.

> "I'm not going to be here, but my guess is that Treasury will continue to push back if it thought that there was currency manipulation," Yellen remarked.

Peter Navarro, Trump's designated White House trade adviser, also indicated earlier on Friday that Trump's Treasury Department would not be favorable towards any currency manipulation attempts by U.S. trading partners.