The US is weighing sanctions on Myanmar’s state-owned oil and gas company to choke funding to the nation’s military regime, according to people with direct knowledge of the matter, a move that risks hitting American allies involved in the sector. 

The Biden administration is still assessing the extent of any measures against Myanma Oil and Gas Enterprise, or MOGE, as companies from allies Thailand and South Korea have interests in energy projects in the Southeast Asian nation, said the people, who asked not to be identified, citing rules against talking to the media. 

The US is also concerned that sanctions could prompt China to fill the void and exert greater economic influence on Myanmar, one of the people said. Already Myanmar’s largest trading partner, China last year boosted pipeline gas purchases by 8% — and it could receive more flows if the US forces Myanmar into a corner. 

US State Department Counselor Derek Chollet said this week in Jakarta that Washington is planning new sanctions that would stifle the junta’s income and ability to buy weapons, though he didn’t offer specifics. Chollet met with Thailand’s foreign affairs minister in Bangkok on Thursday and they “exchanged views on important regional developments, including the situation in Myanmar,” according to a statement.

Washington has been in close consultation with both its allies, according to people with knowledge of the matter. Imports from Myanmar last year accounted for 16% of Thailand’s total natural gas supply, which makes up more than half of the country’s power generation mix, according to the Thai Ministry of Energy.

A spokesperson for the US Treasury Department said the agency doesn’t preview potential or possible sanctions actions. The US State Department didn’t immediately respond to an emailed request for comment. Government spokespeople for Thailand and Myanmar didn’t respond immediately to requests for comment.

Human-rights groups have pressured the US to impose restrictions against MOGE, the linchpin of a sector that’s brought General Min Aung Hlaing’s regime billions of dollars since he overthrew the civilian government more than two years ago. Sanctions against the company could potentially reduce foreign-exchange funds that help finance the military’s suppression of protesting civilians and ethnic groups in the cash-strapped nation.

Myanmar earned about $2.13 billion from gas exports from January to July 2022, according to data from the Ministry of Planning and Finance, which doesn’t break down the recipients. Separately, Myanmar state media said the country last year exported $1.43 billion worth of natural gas to China, with about 12 billion cubic meters of gas flowing every year through a pipeline connecting Rakhine State to Yunnan Province.

The US and its allies in Europe have imposed multiple rounds of sanctions against individuals and entities linked to the regime’s efforts to generate revenue and procure arms, targeting ministries, state enterprises as well as senior leadership and their family members. Those designated are subject to an asset freeze and a travel ban, and entities are prohibited to make funds available to those listed.

The US targeted the leadership of MOGE with sanctions earlier this year though it stopped short of penalizing the entity itself. That drew criticism from activists who have been pushing Washington to restrict one of the junta’s most important sources of revenue after the European Union had done so earlier. 

“I don’t think sanctioning MOGE would cut off the gas, but it could make it harder to acquire funding, insurance, etc.,” said Zachary Abuza, a professor at the National War College in Washington.

Posco International, a subsidiary of the South Korean steelmaker Posco Holdings Inc., is the majority shareholder in one of Myanmar’s largest natural gas fields and has a minority stake in a pipeline. Thomas Andrews, the United Nations special rapporteur on the situation of human rights in Myanmar, said last year that gas field generates up to $400 million for MOGE every year.

As Thailand scaled down its gas imports from Myanmar following the coup, it was forced to turn to volatile and more expensive spot liquefied natural gas prices. Energy security concerns prompted Thai state-owned PTT Exploration & Production Pcl. last year to take over Myanmar’s Yadana offshore gas field after TotalEnergies SE and Chevron Corp. pulled out in protest of junta’s violence against civilians. Chevron’s expected closing date is in the second half of 2023, according to an annual report.

Min Min Oo, spokesman for Myanmar’s Energy Ministry, said the agency cannot take questions related to MOGE and sanctions at this point. Posco Holdings said in an email that it’s closely monitoring the situation as the US hasn’t announced any additional sanctions against Myanmar. PTTEP didn’t immediately respond to a request for comments.

PTTEP also holds 80% economic interest in a field in Myanmar called Zawtika, with MOGE owning the remaining 20%. The company also said that it has taken measures to mitigate the risk of supply disruptions due to the unrest in Myanmar, and prepared additional LNG procurement from elsewhere to make up for any losses.

“It’s not about Thai energy security, it’s about the cozy relationship between the military elites of the two countries,” Abuza said. “But the Thais say that it’s about energy security and so we accommodate them.”

The US Treasury said separately in a statement on Friday that sanctions against Myanmar would also include the supply of jet fuel to the military after air strikes targeting civilians.