How the White House Plans to Hurt Putin

U.S. Deputy Treasury Secretary Wally Adeyemo on the preparations that go into sanctioning Russia.

By , the editor in chief of Foreign Policy.
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Wally Adeyemo is no stranger to economic crises. The 41-year-old policymaker first served in the U.S. Treasury Department amid the Great Recession that began in 2007 as deputy chief of staff to then-Treasury Secretary Timothy Geithner and, later, to Jack Lew. Adeyemo went on to serve as then-U.S. President Barack Obama’s representative to the G-7 and G-20. Each of those roles have served as crucial preparation for his current job as deputy secretary of the treasury under Janet Yellen.

But while some of the economic woes confronting the Biden administration are familiar to a policymaker like Adeyemo—such as high energy prices and a global food crunch—others feel more historic, if not unprecedented. Inflation is at its highest since the 1970s, and Russia’s war in Ukraine continues to dominate diplomatic attention.

FP interviewed Adeyemo as part of FP Live, the magazine’s forum for live journalism. We discussed how Washington has and hasn’t been able to corral global support for its sanctions on Moscow, the future of the U.S. dollar, competition with China, inflation, and much more. Subscribers can watch the full video here. What follows is a greatly condensed but lightly edited transcript.

Wally Adeyemo is no stranger to economic crises. The 41-year-old policymaker first served in the U.S. Treasury Department amid the Great Recession that began in 2007 as deputy chief of staff to then-Treasury Secretary Timothy Geithner and, later, to Jack Lew. Adeyemo went on to serve as then-U.S. President Barack Obama’s representative to the G-7 and G-20. Each of those roles have served as crucial preparation for his current job as deputy secretary of the treasury under Janet Yellen.

But while some of the economic woes confronting the Biden administration are familiar to a policymaker like Adeyemo—such as high energy prices and a global food crunch—others feel more historic, if not unprecedented. Inflation is at its highest since the 1970s, and Russia’s war in Ukraine continues to dominate diplomatic attention.

FP interviewed Adeyemo as part of FP Live, the magazine’s forum for live journalism. We discussed how Washington has and hasn’t been able to corral global support for its sanctions on Moscow, the future of the U.S. dollar, competition with China, inflation, and much more. Subscribers can watch the full video here. What follows is a greatly condensed but lightly edited transcript.

Foreign Policy: Let’s start with the news this week. The oil cartel OPEC agreed this week to slash oil production—on paper, at least—by some 2 million barrels a day. I want to point you to a comment from Democratic Sen. Chris Murphy, who tweeted on the news: “I thought the whole point of selling arms to the Gulf states despite their human rights abuses, nonsensical Yemen War, working against U.S. interests in Libya, Sudan, etc. was that when an international crisis came, the Gulf could choose America over Russia/China.” 

But it didn’t. How much has OPEC’s decision this week hurt American interests?

Wally Adeyemo: I think that you put it best when you said, “on paper, at least.” There’s often a difference in what OPEC says and what OPEC actually does. As you know well, OPEC has already been producing less than 3 million barrels below their quota. But regardless of what they actually do, the fact that they made the announcement was disappointing. OPEC had always made clear that their goal was to make sure that they provided oil to the market, to make sure that the market was well supplied. And what we know today is that the market has not been well supplied, and that is part of the reason that we’ve seen high levels of inflation—not only in the United States but around the world. 

FP: But one of the reasons why OPEC says it’s making this move is that it’s expecting a plunge in global demand and that their cuts in production are designed to buffer against that. 

WA: The idea that this was done in anticipation of a drop in demand does not make sense in light of the fact that one of the biggest drivers of that drop in demand is high inflation costs related to energy. And that’s why I think this doesn’t make sense for OPEC as well because, ultimately, they should care deeply about making sure that we have a strong, robust global economy that is growing, which will allow them to continue to be able to sell their product to the global economy. 

In the United States, one of the things that are encouraging for us is that we continue to see underlying momentum in our economy. We just had job numbers coming out in the United States that demonstrated that we continue to have job growth. While it’s come down from some of the highs, it’s gotten to where we expected it to be, which is a sustainable level of job growth in the United States. And while we’re trying to make sure we keep momentum in our economy, the Federal Reserve is taking steps to try and bring down inflation. So while we see that growth in the U.S. economy, we can’t say that that’s true for the rest of the global economy, where we’ve seen slowdowns—many of which have been driven by high energy prices. That’s why we’re so focused on the idea that we want to keep energy markets well supplied. 

And that’s why our strategy when it comes to Russian energy is one that is very nuanced and driven toward making sure that Russian oil can continue to reach the marketplace but trying to reduce the amount of revenue Russia makes in doing so. As you know, in the spring, the European Union decided that they were going to stop purchasing Russian oil by the end of this year. But in addition to taking that step, they put in place a prohibition on European services being used to move Russian oil. What we know is that that prohibition could, in some ways, restrain the ability of Russian supply to get on the market, which would have an impact on lower income economies because those developing economies are the ones that are still able to buy Russian oil. 

What we’ve done in anticipation of that potential disruption is to put in place a price cap, as it allows Russia to continue to use G-7 services as long as they sell the oil below a certain price. In no way are we demanding that Russia sell within the price cap. Russia has the ability to go out and sell its oil using alternative services to buyers. But what we know is those services will cost Russia more money. And those buyers of Russian oil will realize that the price cap exists and they’ll negotiate lower prices, which will again accomplish our goal, which is reducing Russia’s revenues. 

Our hope is that our interests are aligned with those of other producing countries because we all have an interest in making sure that the global economy continues to grow. 

FP: Let’s get to the underlying issue here, which is the war in Ukraine. I’m struck by the fact that every time Russia commits new atrocities—the sham referendums last week, for example—your administration rolls out new sanctions. But that also implies, then, that throughout the last year, you’ve kept a fair amount of economic ammunition in reserve. This strikes me as a bit of a tightrope walk. Talk us through how you assess how much to hurt Russia in a given moment and how much to hold back for later.

WA: When I took this job in March of 2021, one of the first things Secretary Yellen asked me to do was to conduct a review of how sanctions have been used by the United States since the terrorist attacks on 9/11. And part of that review was talking to our allies and partners about why and when they joined us in taking sanctions actions and why they didn’t. And one of the things that we discovered during that review and our conversations, both with allies and partners, but also a conversation in the U.S. government was that we needed to do rigorous economic analysis as to how we would have the intended impact on our target. That review concluded in October of 2021, and less than a month later, we were entering the conversations with those same allies and partners with regard to what we would do to Russia if they attacked and invaded Ukraine. And those conversations started by thinking through what actions we could take to try and impact Russia’s behavior. The two places that we decided to target were Russia’s revenues in order to reduce the amount of money that they would have to prop up their economy and fund their illegitimate war in Ukraine with. And the second one was going after Russia’s military industrial complex. 

One of the most important lessons we’ve learned during COVID is about the vulnerability of supply chains. So our goal was to make sure that we did everything we could to target Russia’s supply chains. And that’s why we took unprecedented actions immediately following Russia’s invasion of Ukraine. But the thing about sanctions is that Russia and any other actor tries to find ways to evade those sanctions. And as Russia has tried to find ways to evade those actions, it’s created new targeting opportunities for us. And that’s what we’ve done. And what you’ll see in the sanctions that we put in place last week was that we were targeting new supply chain vulnerabilities that had been created because Russia had designed new supply chains to get around the export controls and sanctions that we’ve put in place. 

The thing that we want to make clear to the Kremlin and to those who support Russia is that as they attempt to find ways to evade our sanctions, our sanctions and export controls are going to continue to make sure that Russia doesn’t have access to the revenues they need to fight this war but also that we make it hard for them to continue to build up their military supply chains. 

For example, there are two leading tank manufacturers that are no longer able to manufacture tanks because of the export controls and sanctions we’ve put in place. Russia is running low on precision missiles. They’re unable to continue to build those precision missiles because we have taken away the semiconductors that they need to do so. And what Russia, of course, is trying to do is to find alternative suppliers. And our message to those alternative suppliers is that if you provide material support to the Russia industrial complex, we are going to use our sanctions authorities throughout the G-7 and among our other allies and partners to come after you as well. 

FP: So let me ask you this. Let’s say tomorrow, if Russia were to try and use a tactical nuclear device, what is the economic policy response to something like that? 

WA: No one should contemplate ever using a nuclear weapon. It’s unacceptable. 

As long as Russia’s war against Ukraine continues to occur, we’re going to continue to put options in front of the president. We have an overarching strategy as an administration and as an alliance in terms of how we support the Ukrainians. That doesn’t only involve sanctions. So I would say that sanctions are an important tool, and it’s one where we’re continuing to refine our effort to do the two things that I’ve spoken about: which is to reduce revenues and go after the supply chains. But they are just a tool in service of a broader foreign-policy strategy. 

FP: There’s a school of thought that goes that the more Americans wield sanctions as an economic tool and the more Washington talks of, for example, a new Cold War versus Beijing, much of the global south, especially Asian countries, say they don’t like what they’re hearing. There’s talk of a new nonaligned movement or strategic autonomy—pretty much the type of which we see exhibited by India, which has not gone along with U.S. sanctions on Russia. So I have to ask, are we overusing sanctions? Do American policies actually end up dividing the world?

WA: I was just in India a few weeks ago. What I would say is that the U.S. relationship with India is as close as it’s ever been. And that partnership spans both strategic and economic issues. And what that demonstrates is the ability of the United States working to build alliances and partnerships to try to maintain a global world order that has benefited us since World War II but has also benefited other countries around the world. 

I think our goal is frankly not to create a new alignment but rather to make sure that we’re creating a level playing field when it comes to economics, one in which countries around the world are able to compete with each other but also cooperate with each other with regard to issues. 

FP: But doesn’t it worry you that much of the world doesn’t go along with many of the sanctions America tries to impose?

WA: I think it’s important to remember that with regard to Russia and Ukraine, for example, more than 30 countries have taken action when it comes to Russia’s invasion of Ukraine.

FP: But many more have not.

WA: The key there is that many of these countries that have not taken actions may not have the tools or the resources needed to prevent Russia from taking the actions that they had. But I point you to the vote at the United Nations, where a majority of countries around the world rebuked the war that is happening in Ukraine. 

Next week, we’re going to have the finance ministers and central bank governors from around the world here in Washington. They come every six months. And the last time they were here, finance ministers from Latin America and from Africa, while their countries may not be publicly rebuking Russia for their invasion of Ukraine, all of them raised concerns with me and with my colleagues about the price of energy and the price of food. And they all realized that these prices had been driven higher by Russia’s unprovoked invasion of Ukraine. The key thing for us is that we want to build an alliance that will take actions to hold Russia accountable. 

FP: I’ll just point out that many of these same finance ministers also wonder whether the U.S. is devoting a disproportionate amount of attention to Europe right now. But let me ask you this: Given everything we’re discussing, do you think the U.S. dollar can remain the world’s reserve currency?

WA: We have a long-standing tradition in the U.S. government that only the secretary of the treasury speaks about the U.S. dollar. So I defer to her. 

What I’ll do is talk about the U.S. economy. And I think that when you look around the world, you see a bunch of headwinds, lots of economies that are struggling. But we’ve seen historic levels of job growth in the United States. You’re right to point out that we’re dealing with high costs and inflation, which is a global phenomenon. But what we’ve seen over the last several months have been encouraging in terms of the cost of gasoline at the pump coming down from high levels over the summer; we’ve gotten legislative approval to cut the costs of prescription drugs and other things that matter to our economy. 

I think that fundamentally, our economy is stronger and in a better position to deal with these headwinds than any economy around the world. But in addition to being strong now, we’ve passed three historic pieces of legislation and the Inflation Reduction Act in the bipartisan infrastructure law and the CHIPS and Science Act to make America competitive for decades to come. Part of my job is going to speak to business leaders both in the United States and also around the world. And when I do that, all of these business leaders are thinking about how they can invest more here in the United States. 

FP: Given the headwinds you mention, what would it take to lift tariffs on Chinese goods?

WA: Part of our goal when the tariffs were put in place was to create a level playing field for American firms and companies going forward. The president, of course, is thinking through how we can use tariffs in a strategic way to meet our overarching objectives. I’ll leave to him and others to figure out how we do that with regard to China. 

The broader issue is around the idea that for too long, China has been subsidizing industries and been operating in a way that doesn’t only create an unlevel playing field for American companies but not a level playing field for countries in their region and around the world. Our goal has got to be that China and every other country is able to compete on a level playing field.

FP: I’ll just point out that there is research suggesting that lifting the tariffs would also help American farmers, for example.

WA: What I would say is that ultimately for American workers like farmers, the most important thing for them is to have access to markets and markets here at home, which we are creating by making investments through the three historic pieces of legislation we’ve passed, which will not only help increase economic growth in the United States but also access to foreign markets on a level playing field.

Ravi Agrawal is the editor in chief of Foreign Policy. Twitter: @RaviReports

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