The West is facing difficult choices in continuing sanctions against Russia - but the right move is to 'bite the bullet' and end exceptions for its energy sector, Mohamed El-Erian says

• The west needs to "bite the bullet" and fully sanction Russia's energy sector, Mohamed El-Erian said.
• The economist thinks carve-outs for energy give Russia a "back door" and could disrupt global finance.

The West is facing a difficult set of choices in the campaign to pressure Russia to end its war on Ukraine, Mohamed El-Erian wrote this week.

However, even if pain is likely in the short-term, the famed economist says it is clear that the only real choice is to end carve-outs for Russia's energy sector as part of Western sanctions, and cut off a key economic lifeline to the country.

Amid a deepening energy crisis, the EU has urged citizens to conserve energy ahead of a difficult winter, banks have predicted Germans could turn to wood for heating fuel this year, and President Biden has struggled to secure an increase in production from key petro states.

The global energy market is reeling from supply disruptions stemming from Russia's war, on top of historic heat waves across the globe this summer.

But instead of giving into Russia's attempts to weaponize the global energy trade, Western countries need to "bite the bullet" and end the exceptions it's made so far for Russia's energy products, El-Erian wrote in an opinion column on Project Syndicate.

"The sanctions would have bitten much harder had the West not opted for a carve-out of Russia's energy sector," El-Erian wrote, stating that exemptions on Russian sanctions, which have allowed Western countries to obtain oil and energy products, have softened their economic punishment on Russia.

Those exemptions have been deemed necessary by some leaders, who have been concerned about gas cutoffs in Europe and an imminent energy crisis this winter.

But those exemptions had a long-term impact of allowing Russia to conduct business through the "side and back doors," El-Erian said, which could do damage to the global economy in the long run. Since sanctions aren't being employed uniformly or being enforced by a governing body, such as the IMF or the World Trade Organization, that could motivate countries to care about their own resilience and abandon the US dollar.

In other words, Western leaders are torn over two competing objectives of sanctions against Russia. The options amount to cutting Russia's war funding or preventing a crisis in Europe. El-Erian believes that Western nations need to firmly commit to one.

"While easing sanctions could help alleviate concerns about Europe's economic outlook, this option is a non-starter, given the atrocities that Russian forces are committing in Ukraine. But if the West is serious about pressuring Russia through truly crippling economic and financial sanctions, it needs to bite the bullet and eliminate the carve-outs for energy," El-Erian said.

The economist has acknowledged that doing so would have a severe impact on the global economy, referring to the situation as "little fires everywhere" in a previous op-ed. But that chaos would be short-lived, and likely worth it, especially if Western nations come together to provide aid and economic support to their alliance.

"If done properly, this option would yield better outcomes in the medium and long-term than the current strategy," El-Erian added.