The prospect of a peace deal in Ukraine has been gaining momentum in the global oil market over the past few days, stripping away part of the geopolitical risk premium that has kept prices elevated since Russia’s invasion on 24 February 2022. Following meetings last week in Berlin with Ukrainian and European officials, U.S. special envoy Steve Witkoff and Jared Kushner stated that consensus was reached on around 90% of the issues within a 20-point peace plan. Ukraine has indicated that it may drop its NATO membership bid in exchange for legally binding U.S. and European security assurances, similar to NATO’s Article 5. This states that an attack on one member is an attack on all, obligating other members to assist, potentially with armed force, to restore security. The U.S. has now said that it is offering ‘Article 5-like’ assurances, with President Donald Trump now reportedly willing to submit to the Senate for approval. Meanwhile, Russia has indicated it could accept Ukraine joining the European Union (E.U.) of 27 countries as part of a settlement, a major shift from its earlier stance. However, it continues to demand that Ukraine withdraw from parts of Donetsk still under Kyiv’s control, while Ukraine rejects ceding territory. Talks continue, with Trump saying in the last few days that “we’re closer now [to a peace deal] than we have been,” so what would it mean if such an agreement was reached tomorrow?

Even if a full peace agreement were reached tomorrow – freely agreed by both Ukraine and Russia — it would likely take months for any significant rolling back of U.S. sanctions on Russia to occur, and years before all such prohibitions were removed. “Literally thousands of sanctions have been imposed on Russia since [24 February] 2022, involving codification through multiple executive orders, Treasury designations, and sometimes congressional legislation, so removing them doesn’t just mean a signature,” a senior Washington-based source who works closely with the U.S. Treasury Department exclusively told OilPrice.com last week. “Removing each one will require a formal review process, inter?agency coordination, and sometimes Senate approval if treaty?level commitments are involved,” he noted. “Don’t forget that these sanctions often also feed into similar ones on third-country firms and individuals that are connected to Russia, so getting rid of those would require another level of legal process and negotiations with allies in Europe and Asia, which would be very time consuming,” he underlined. “And on top of that any major rollback could be challenged every step of the way by the lawmakers, which would take it out of the control of the executive,” he told OilPrice.com. Ultimately, sanctions are seen as the tangible sign of U.S. resolve, and any rapid removal – absent a clear milestone achieved by Russia – would risk being read by allies and adversaries alike as a reward for aggression. Given this, any substantive longer-term effects on the global oil market would likely be muted.

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Even more so, as it is highly likely that such an initiative would involve a graduated process, as with Iran, according to the Washington source. Indeed, once the U.S. had agreed to the ‘Joint Comprehensive Plan of Action’ (JCPOA, or colloquially ‘the nuclear deal’) on 14 July 2015, sanctions relief for Iran was phased in over years, contingent on verified compliance milestones, with Treasury and State monitoring implementation before easing restrictions, as analysed in full in my latest book on the new global oil market order. “It’s pretty clear that the Europeans would want to see this sort of a rollback, and Ukraine too, with [sanctions] relief charted against benchmarks, not a blanket lifting overnight,” said the Washington source. “In this case [Ukraine], we’d be looking for proof that Russia is not continuing with military support for its occupied territories, or a further build-up of Russian military in those regions, and this would require international monitoring,” he observed. Moreover, as seen in the E.U.’s recent ‘Sanctions Snapback’ on Iran, any relief programme for Russia would almost certainly contain a similar mechanism to re?impose measures if Moscow breached peace terms. Judging from the Snapback on Iran, and the likely terms for Russia of any peace deal, such a snapback for Moscow would involve a quick and broad-based reimposition of sanctions on it and third parties relating to military hardware, dual-use (civilian and military) technology, and finance as monitored through the lens of the Financial Action Task Force (FATF). The FATF enforces 40 standards against money laundering and nine against terrorist financing, with sweeping powers to sanction individuals, firms, or states that fall short. Its grey? and black?list designations trigger escalating restrictions, making it an aggressive enforcement tool.

In any event, Europe – both the E.U. and other countries, including Great Britain – looks even less likely than the U.S. to start rolling back sanctions on Russia any time soon. After years of effectively bankrolling the Russian war machine through vast imports of the country’s oil and gas, the message finally appears to have sunk in: the rest of Europe is in President Vladimir Putin’s sights after Ukraine. He laid the groundwork for what was to come back in his second state?of?the?nation speech after his 2004 re?election, broadcast live on Russian television, when he said: “The demise of the Soviet Union was the greatest geopolitical catastrophe of the century. As for the Russian people, it became a genuine tragedy. Tens of millions of our fellow citizens and countrymen found themselves beyond the fringes of Russian territory.” Following that, his tentative first military incursion into a sovereign European country – Georgia in 2008 – showed him that he could get away with more, in the classic ‘salami slicing’ strategy of territorial advancement that he has used since. This was because of the ineffectual response from Europe to this aggression – itself a result of the fact that the continent, particularly Germany, was unwilling to jeopardise its cheap Russian gas and oil supplies, as also detailed in full in my latest book on the new global oil market order. When the same meek response met his 2014 invasion of Ukraine, and subsequent annexation of Crimea, it was game on for the full invasion of Ukraine in 2022. NATO Secretary-General Mark Rutte laid it out bare for Europe just over a week ago: “We are Russia’s next target. And we are already in harm’s way.” With this view now widespread among Europe’s top leaders, the meaningful rollback of sanctions on Moscow looks unlikely, with the corollary lack of long-term follow-through in the global oil market.

President Trump has further fuelled Europe’s determination to take its own path on Russia, having made it clear early in this presidency that NATO members who did not dramatically increase their defence spending could not rely on U.S. military support in the event of attack from Russia. The last time NATO met, members agreed to increase their defence spending to 5% of their gross domestic product, up from an average of 2% last year. Against this backdrop, it would be too obscene even for Germany to advocate the resumption of oil and gas imports in size from Russia. Indeed, around two weeks ago, the E.U. fully agreed to implement its ‘REPowerEU Roadmap’, which European Commission (E.C.) President Ursula von der Leyen highlighted as enabling the continent to: “Enter the era of Europe’s full energy independence from Russia [as] Today, we are stopping these imports permanently.” She underlined: “By depleting [Russian President Vladimir] Putin’s war chest, we stand in solidarity with Ukraine and set our sights on new energy partnerships and opportunities for the sector.” E.C. Commissioner, Dan Jørgensen, put it even more plainly: “We [the E.U.] will “never go back to our dangerous dependence on Russia, we will never go back to volatile supplies and market manipulation, and we will never go back to energy blackmail and economic exposure.” As such, the agreement contains bans on E.U. imports of pipelined natural gas, liquefied natural gas, and oil from Russia, as analysed fully by OilPrice.com. As one senior source in the EU’s security complex exclusively told OilPrice.com last week: “Regardless of what the Americans do, and regardless of any peace deal in Ukraine, we’re not rolling back anything on Russia.”

By Simon Watkins for Oilprice.com

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