The Wisdom of Nuclear Carve-Outs From the Russian Sanctions Regime
Editor’s note: Don’t miss our comprehensive guide to Russia’s war against Ukraine.
Over the last two weeks, the United States and its partners have unleashed a campaign of significant sanctions measures against Russia in response to its unprovoked assault on Ukraine. These sanctions have targeted Russian financial institutions, business leaders and oligarchs, and commodities. But, as the sanctions campaign enters its third week, there is increasing pressure to find new areas to target, particularly those that might impede the Russian government’s efforts to sustain and support its activities. President Joe Biden’s March 8 decision to ban Russian energy imports to the United States underscores the administration’s effort to identify new sources of leverage, including those that may start to impose costs on U.S. consumers. In this context, there have been recent calls to impose sanctions on Rosatom, Russia’s civil nuclear energy corporation, particularly in light of Russia’s apparent decision to take over Ukraine’s nuclear facilities and to treat them as their own.
Though more needs to be done to articulate the connection between sanctions and Washington’s desired end state for the conflict, intensifying the pressure on Russia makes sense as part of a broad campaign to contest the invasion and support Ukraine. But Washington ought to do so smartly rather than throwing every conceivable sanctions measure against Russia regardless of its consequences. As others have observed, it is critical to avoid creating an uncontrolled escalatory spiral that could have dangerous and damaging consequences, from a general war to damage to other important interests.
Imposing blanket sanctions on Rosatom and Russian civil nuclear energy trade presents such a risk. Rosatom is a central part of the global nuclear industry and its provision of services — including nuclear fuel — to existing reactors should be exempt from any such sanctions that might be imposed so as to avoid deepening what could become a global energy crisis. Moreover, Rosatom’s role in nonproliferation, nuclear security, and nuclear safety projects must also be preserved. It is possible to do so without undermining the use of sanctions more generally, either through tailored imposition of sanctions or the use of general licenses. Though these steps could be criticized as creating loopholes, policymakers should bear in mind that while events in Ukraine are dominating the news, they cannot control policy.
Rosatom’s International Presence
Russia has long seen nuclear energy as a market in which it has a competitive edge and, following domestic restructuring of its industry in the early 2000s, has vigorously promoted foreign nuclear energy projects. Rosatom, as the state corporation responsible for Russia’s civil nuclear energy sector, has been the primary agent for this effort, with over $138 billion in new projects reportedly booked as of 2020. It has reactor construction projects underway in as diverse an array of countries as Bangladesh, Finland, and Turkey. Rosatom has also structured its contracts in such a way as to provide attractive terms and compete aggressively for market share, including through direct financial support. Its annual revenue as of 2019 was approximately $7 billion, of which over half came from the export of uranium products, nuclear fuel assemblies, and other activities.
Russian-built and supported reactors are also operational worldwide, including in China, India, and Iran. Fuel for most of these reactors is provided by Russia, even in China and India, given the proprietary nature of fuel design and the way in which the reactor supply contracts are typically structured. Iran is wholly dependent on Russian nuclear fuel supply for its Bushehr Nuclear Power Plant for at least the next several years. Bushehr’s spent nuclear fuel is also subject to a repatriation provision in the fuel supply contract, an arrangement that Rosatom also has with other countries. Beyond serving an obvious nonproliferation benefit by removing potential sources of plutonium from states with nuclear power reactors, repatriating spent nuclear fuel is also an attractive incentive for plant operators who otherwise have to store and secure this material. Rosatom also has responsibilities for providing training and other services to support the safe, secure operation of new and existing nuclear facilities. Last but not least, Rosatom is also a supplier of enriched uranium around the world, including to the United States pursuant to an agreement permitting the import of large amounts of Russian uranium and suspending an anti-dumping investigation that dates from 1992 but which was amended in 2020.
Rosatom therefore has important roles in not only Russia’s economic future, but also in maintaining its legacy facilities around the world.
Sanctions Could Wreck It
Were sanctions to be imposed on Rosatom tomorrow, the United States and its partners could bring all of these activities to a grinding halt. Acting unilaterally, the Biden administration could announce sanctions that block the company’s U.S. assets and thereby prohibit it from engaging in any business in the United States. These sanctions would also have a negative effect on Rosatom’s ability to operate internationally, as banks around the world use U.S. sanctions lists to administer their own compliance programs.
There is no question that the authority to take these steps exists or could be created quickly. There are a variety of existing sanctions authorities that could be utilized, including the 2017 Countering America’s Adversaries Through Sanctions Act or Executive Orders 13662 and 14024. Section 1 of Executive Order 13662 is particularly broad, delegating to the secretary of the Treasury in consultation with the secretary of state the authority to block the property of any entity or individual determined to operate in a Russian economic sector identified by those two officials. Energy is explicitly identified as one such sector. Importantly, even if an authority to impose such costs does not already exist, the president has the authority under the International Emergency Economic Powers Act to create it.
If Europe and other partners acted in concert, the effects would be magnified considerably. Crucially, the United States also has a practice of adopting “secondary sanctions” that create a threat of penalties for those that choose to do business with U.S.-designated entities and individuals. These penalties typically include, for financial institutions, denial of the ability to maintain correspondent banking accounts with U.S. banks, effectively cutting off their ability to conduct transactions in the United States. Other such penalties could include being denied a variety of export and import privileges, or even being subject to designation themselves for having sought to facilitate sanctions evasion. With the possible exceptions of China, India, and Iran — for their own, various reasons — most countries around the world would halt their cooperation with Rosatom when threatened with such risk. Even China and India would probably reconsider their cooperation with Russia, or seek alternative means to pursue joint projects that reduced the exposure of their entities to this threat.
Handle With Care
Even if the United States and its partners could act in this fashion, they would be unwise to take such a draconian stance. Ending Russia’s ability to service its existing facilities would have several downsides and would not meaningfully contribute to the central cause of compelling Russia to halt its invasion of Ukraine.
For starters, it could deny access to energy supplies for existing facilities and create constraints on their future supply. There are other potential suppliers of nuclear fuel to Russia’s existing customers, but — unlike oil or natural gas — it is not as straightforward to replace Russian-designed and built nuclear fuel with substitutes. An international nuclear fuel bank also exists and was intended to help manage disruptions, but Russia is one of the world’s largest suppliers: Taking it offline altogether was not envisioned as a real possibility when the bank was created. The result could be a significant energy-supply disruption when global prices are already high, and there are uncertainties about future supplies.
Beyond the immediate effects of such a supply disruption, there is a larger nonproliferation problem of undermining the idea that countries can rely on the global market for their nuclear fuel. One of Iran’s long-running arguments in defense of its own nuclear fuel cycle — the same fuel cycle that could be used to produce nuclear materials for weapons — has been that it cannot rely on markets for its supplies and that it must instead rely on indigenous production. The aforementioned fuel bank is only one part of a general effort on the part of nuclear suppliers to disprove this contention. Cutting off Russian supply would undermine these efforts, perhaps fatally in light of Russia’s overall significance to the market, and could mean a lot more centrifuges in a lot more places.
It is also unclear how targeting Rosatom will influence future relations between the nuclear supplier states. For the last 50 years, the global nuclear suppliers have worked together to try to manage the spread of the technologies and materials that are central to this industry. Russia will retain a national security interest in nonproliferation whatever happens with respect to this present crisis. But, it is also true that Russia does not always see eye to eye with the United States and its partners on what is necessary in this regard. For example, Russia already does not agree with the United States and its partners that states should accept enhanced international inspection authorities as a condition of supply and has reluctantly supported other enhancements to nuclear supply guidelines and inspection authorities. Sanctioning Rosatom and complicating its business model will almost certainly complicate efforts to improve nonproliferation standards, but could even result in Russia relaxing its approach, particularly if its nuclear supply arrangements inevitably focus on those prepared to also breach U.S., European, and other sanctions regimes.
There are also specific risks from targeting Rosatom, such as that the Russians might refuse to undertake their part in the re-implementation of the 2015 Iran nuclear deal should the United States and Iran arrive at an arrangement for their mutual return to the agreement. The deal makes Russia responsible for modifying the Fordow enrichment facility and accepting enriched Iranian uranium that is in excess of that amount permitted under the Iran nuclear deal, arrangements that can be expected to continue if the United States and Iran agree to re-enter the deal. The Russians have already halted talks around mutual return to the deal given sanctions risk, including to these projects, and it is possible that this threat will remain a stumbling block in the process of a mutual return to the deal if agreed. Notably, the process of JCPOA implementation already covers very specific waivers to facilitate the identified projects in the JCPOA, which are separable from the broader question of Rosatom sanctions.
A Better Approach
Fortuitously, to go along with the broad reach of potential sanctions tools, the United States and its partners also have the ability to exempt from sanctions certain activities that they might judge as being prejudicial to their overall interests. The existing sanctions campaign already acknowledges the complex web of interests that surround Russia, insofar as energy supplies to Europe not only have continued notwithstanding sanction, but also the United States has explicitly adopted sanctions that exclude existing energy-related services. Moreover, the sanctions imposed on March 8 on broader Russian energy exports excluded nuclear energy altogether. Even if future sanctions measures are adopted that target Rosatom, they could be shaped to ensure their emphasis is on the future of Russia’s energy industry rather than on immediate supply and that exceptions will be made where necessary for global nonproliferation interests and norms.
For example, Rosatom could be designated by the United States for providing support for the Russian invasion of Ukraine, particularly as Rosatom is now apparently taking ownership of Ukrainian nuclear facilities. But, in imposing the sanctions, the United States could do so using the “directive” approach it has taken to sanctions rather than adding the company to the Specially Designated Nationals and Blocked Persons list. This list is the primary means whereby banks and other companies automatically screen for sanctions compliance, and not adding Rosatom to this list would in and of itself ensure a more careful private-sector implementation approach. This “directive” approach would involve the Treasury Department issuing a “directive” under one of the existing executive orders that spells out precisely what the sanctions would cover and what they would not cover. For example, Treasury could specify that sanctions only cover future projects or even those under construction, but not yet completed. Existing fuel supply arrangements and other services associated with nuclear security and safety too could be excluded from sanctions. Depending on foreign and corporate responses to these sanctions, additional licenses and clarifications could also be issued to more directly shape how the sanctions are implemented. Likewise, the United States could also use this mechanism to continue to permit services to be provided to the Ukrainian nuclear facilities presently being seized without ceding the point to Russia that it now exercises legal control over them.
There are some risks to this approach, not least that Russia may be able to continue to generate revenues and engage in some limited sanctions evasion. However, compared to Russia’s oil and gas sector, Rosatom’s contribution to Russian national revenue is relatively low, particularly when set against potential risks. Moreover, if the United States anticipates that this crisis will be a prolonged one, then taking action to target new projects instead would be easier to achieve with far fewer potential downsides.
More generally, as U.S. and partners expand sanctions, they should continue to provide exemptions where necessary to safeguard their other interests. It is also notable that the United States has long maintained exemptions in its nonproliferation-related sanctions to permit transactions with Russia to support the International Space Station, and more recent sanctions have permitted energy-related transactions if needed to maintain oil and natural gas flows.
There will continue to be criticism of this approach, particularly good-faith expressions of frustration from Ukraine as it seeks to maximize attention and support for its cause. Although it will be difficult to maintain this stance, the risk of overindulging in the pressure campaign is potentially as great as leaving some leverage on the table if the consequence is an undermined global nonproliferation regime.
Richard Nephew is the author of The Art of Sanctions and a senior research scholar at the Center on Global Energy Policy at Columbia University. Nephew most recently served as the deputy special envoy for Iran in the Biden-Harris administration. He previously served as principal deputy coordinator for sanctions policy at the Department of State and in a variety of other positions in the U.S. government.
