U.S., Europe Unity on Ukraine Shows Limits Amid Differences on Russia Sanctions

“Putin was banking on NATO being split,” Mr. Biden said at NATO headquarters in Brussels Thursday after meeting with the military alliance and the G-7 leaders. “NATO has never, never been more united than it is today.”

After firing off several barrages of sanctions to weaken Russia’s economy and cripple Mr. Putin’s ability to fund the war, the allies are grappling with how to move forward, with some calling for more sanctions while others want to focus on enforcement of those already levied.

Points of particular contention center on targeting Russian energy exports and whether new sanctions would inflict job losses and other pain on some European countries, whose trade with Russia dwarfs the U.S.’s, and could incite voter anger at a time of high inflation.

“The sanctions must have a bigger impact on the Russian side than the European side,” Belgian Prime Minister

Alexander De Croo

said Thursday on his way into the EU leaders’ meeting with Mr. Biden. Banning purchases of Russian energy, Mr. De Croo said, “would have a devastating impact on the European economy and I think it’s not necessary.”

While the U.S. is planning additional measures, the lack of new sanctions initiatives by the allies appeared to offer Russia’s markets some respite.

The ruble has recovered some of its initial losses after the West’s first rounds of sanctions froze the central bank’s reserves, blacklisted 80% of the banking sector and imposed sanctions on major companies and top government and business leaders.

“The reason the ruble has rebounded as substantially as it has over the past couple of weeks is because the market is recognizing that there are a number of loopholes left available to Putin and his bankers to exploit,” said

Nathan Sales,

a former senior State Department official in the Trump administration now at the Washington-based Atlantic Council.

Mr. Biden and his advisers have said that coordinating with allies will ultimately produce greater impact than unilateral sanctions. Under the Trump administration, relations with Europe soured over U.S. sanctions which hit foreign companies doing business with Iran, Cuba and Germany’s Nord Stream 2 gas pipeline project with Russia,

The Biden administration is so far holding off completely severing Russia’s banking sector from the global financial system, banning all of its energy exports or adopting so-called secondary sanctions, which hit foreign firms doing business with sanctioned entities. Instead, the administration wants to see existing sanctions enforced.

“An important part of this next phase,” said

Jake Sullivan,

Mr. Biden’s national security adviser, is “ensuring that there is joint effort to crack down on evasion, on sanctions busting, on any attempt by any country to help Russia basically undermine, weaken or get around the sanctions.”

By allowing Russia to continue to receive income for its oil and natural gas sales—which form the majority of its exports—and leaving a portion of the banking sector connected to the international financial system, Moscow is able to maintain access to some foreign-currency reserves to pay its debts. Sanctions on Russia’s central bank limit use of the revenue to prop up the ruble and the economy.

Critics of the administration said the Biden administration must be willing to levy the full force of U.S. economic power.

Sen.

Pat Toomey

(R., Pa.), the ranking Republican on the Senate Banking Committee, which oversees sanctions policy, said targeting Russia’s energy revenues, together with helping Ukraine’s military, “is the best chance the U.S. has to convince Mr. Putin that this war was a calamitous blunder that he should immediately abandon.”

Administration officials said the ruble rebound will fade and enforcement efforts will bring about the dour economic outlooks the International Monetary Fund and others are projecting. IMF Managing Director

Kristalina Georgieva

this week predicted a deep recession for Russia. The Institute of International Finance, a global association of financial firms, sees the sanctions wiping out 15 years of Russian economic expansion.

Allies have created “a vise that is squeezing harder and harder with each passing day and week,” said Mr. Sullivan, and now they plan to “tighten the screws, and then consider other means as we go forward.”

Mr. Putin, however, hasn’t pulled back, despite the economic challenges and battlefield setbacks, and instead has stepped up attacks on civilian targets.

The U.S. Treasury Department said Deputy Secretary

Wally Adeyemo

will in coming days travel to Europe, looking to fill gaps in the sanctions campaign and discuss the next phase. Mr. Adeyemo was instrumental in orchestrating a level of cooperation between the U.S. and EU never before seen in sanctions policy.

Besides hitting energy exports and cutting off the rest of Russia’s banks, Mr. Sales and other former U.S. officials said, the U.S. could use secondary sanctions against China and other countries that aren’t supporting the West’s pressure campaign. Another option is to allow Russia to use foreign-currency revenue from exports of oil and gas solely to buy humanitarian or other non-banned products, paid through special escrow accounts—a tactic used with Iran.

While the EU pledged this week to crack down on countries helping Russia evade sanctions, some leaders in Europe have in the past been wary of secondary sanctions, seeing them as an extraterritorial abuse of power. The U.S., meanwhile, has so far not followed its European partners in sanctioning several of Russia’s wealthiest oligarchs—a group with personal assets totaling an estimated $55 billion.

To potentially strengthen their resolve to target Russia’s energy sector, the U.S. and EU announced a new effort Friday to dial up liquefied natural gas supplies to Europe over the coming months, bolstering the bloc’s announced efforts to rapidly reduce its reliance on Russian gas. The allies also moved toward settling longstanding trans-Atlantic disputes over issues like data transfers.

U.S. and European officials said that their future actions would be in direct response to the course Mr. Putin takes in the war.

In Berlin, where the government has turned cautious about the cost of additional sanctions, officials warn privately that a rising death toll in Ukraine or the use of chemical weapons by Russia could force them to consider measures now seen as too costly, such as an oil-import ban or an outright embargo on trade with Russia.

Within the EU, German officials, backed by Italian, Greek and Hungarian counterparts, have argued that the bloc should now focus on implementing current sanctions, according to diplomats. A range of countries, from Poland to Ireland and Sweden, want tougher action.

Amid these divisions, European officials for weeks have discussed barring Russian ships docking at EU ports but have yet to take action. Promises to re-examine new measures against individual Russian banks also haven’t materialized.

“EU cannot adopt wait-and-see approach in the face of mass atrocities by Russia in Ukraine,” the leaders of Poland and the Baltic countries wrote to other EU leaders on Thursday, as they pressed for exclusion of Russian vessels and freight transport from the EU. “We must together put maximum pressure on Russia to stop the war.”

Write to Ian Talley at ian.talley@wsj.com, Laurence Norman at laurence.norman@wsj.com and Daniel Michaels at daniel.michaels@wsj.com