Almost a year after Myanmar’s military seized power, the U.S. and other Western nations have levied several rounds of sanctions against the country, but they have yet to target the oil-and-gas industry, the junta’s main financial artery.

As Myanmar’s military escalates its war on opponents, the U.S. and other countries are facing growing pressure from lawmakers and human-rights advocates to take action against an industry that generates billions of dollars in revenue each year, and is the country’s largest single source of...

Almost a year after Myanmar’s military seized power, the U.S. and other Western nations have levied several rounds of sanctions against the country, but they have yet to target the oil-and-gas industry, the junta’s main financial artery.

As Myanmar’s military escalates its war on opponents, the U.S. and other countries are facing growing pressure from lawmakers and human-rights advocates to take action against an industry that generates billions of dollars in revenue each year, and is the country’s largest single source of foreign cash.

Previously unpublished letters obtained by the advocacy group Justice for Myanmar and reviewed by The Wall Street Journal illustrate how important revenues from the industry are to the country’s military. The letters, between military officials and Myanmar Oil and Gas Enterprise and dated in early November, appear to show junta leader Min Aung Hlaing ordering the state-owned company, known as MOGE, to disclose how much profit it would earn over a six-month period from a gas project called Yetagun.

One of the letters contains notes that say these are the questions from “SAC Chairman,” a likely reference to Min Aung Hlaing, who is the chairman of the State Administration Council. “1) Resumption of export is ok? 2) How about payments? 3) What do we do if they don’t pay?” the note reads.

The project in question, jointly owned by Thai, Malaysian and Japanese companies, is considerably less lucrative than other Myanmar energy projects, with MOGE estimating some $22 million in profit over the period—from October 2021 to March 2022. The military nonetheless expressed interest in exactly how payments would be made and what would happen in the event that they weren’t.

Myanmar's junta leader, Min Aung Hlaing.

Photo: Stringer ./REUTERS

“The fact that top junta leaders are showing concern about when they will get paid demonstrates how crucial oil and gas is for the junta, at a time when they are intensifying their campaign of terror,” said Yadanar Maung, a spokeswoman for Justice for Myanmar, an advocacy group based in the country that works covertly to document the military’s economic activities and campaign for accountability.

After seizing power Feb. 1, Myanmar’s military brutally suppressed pro-democracy protests, killing more than 1,300 people and jailing over 10,000, according to the nonprofit Assistance Association for Political Prisoners. It has recently doubled down on its claim to power, sentencing civilian leader Aung San Suu Kyi to two years in prison for incitement and breaking pandemic rules after a trial that was closed to the public. The 76-year-old Nobel Peace Prize winner is facing a raft of other charges that could keep her in prison for the rest of her life.

The latest sanctions by the U.S. against the junta, which were announced last week in coordination with similar actions by the U.K. and Canada, targeted four officials and three entities linked to the military. Earlier sanctions have taken aim at senior military leaders and army-linked businesses including two of the country’s biggest conglomerates, Myanmar Economic Corp. and Myanmar Economic Holdings Ltd.

Calls have been growing in recent months to add Myanmar’s state-owned energy firm to the list. In August, 462 civil society organizations petitioned the U.S., U.K., European Union and Australia to blacklist MOGE. The groups asked that companies continue operating but deposit all payments to MOGE in escrow accounts that could only be accessed once democracy is restored.

Some U.S. lawmakers have signaled support for oil-and-gas sanctions, introducing new legislation called the Burma Act that conspicuously puts the ball in President Biden’s court. The text explicitly empowers the president to order the sanctions, a privilege he already has but so far has opted not to use. The European Parliament also recently passed a resolution calling for the EU to target the sector, as it prepares to weigh a new round of sanctions in early 2022.

The State Department’s top Asia official, Daniel Kritenbrink, said in early December he couldn’t comment on the likelihood of sanctioning the sector, adding that “all options are on the table.”

Some industry experts say they are surprised it hasn’t happened already, calling it a matter of when, not if, but governments face a dilemma over whether and how to engineer a smooth exit for foreign companies that operate the extraction and transport of Myanmar’s energy resources.

Proponents say sanctions would demonstrate seriousness about cutting off cash the junta uses to enrich rights-abusing officials and buy weapons and other equipment used to suppress and even kill civilians. Others warn an abrupt withdrawal could imperil domestic energy supply and cede the sector to less scrupulous investors, without effectively persuading the junta to negotiate.

“The question facing the Biden administration is whether they see it in their policy interest to ratchet up more pressure,” said Michael Martin, an adjunct fellow at the Center for Strategic and International Studies and a former Asia specialist for the Congressional Research Service. “Biden has the authority to impose much more severe sanctions right now than he has. It’s a choice that’s being made.”

Protesters barricaded streets in Yangon on March 16.

Photo: Getty Images/Getty Images

Central to the debate in both Washington and Brussels is a natural-gas project called Yadana, owned and operated mostly by companies based in France and the U.S. It is the largest of Myanmar’s natural-gas projects, producing some $1.4 billion worth of gas and $1 billion worth of exports during the fiscal year ending in 2018, according to data published by the Extractive Industries Transparency Initiative.

France’s TotalEnergies SE is the project’s operator, holding a 31% stake. Chevron Corp.’s local affiliate, Unocal Myanmar Offshore Co., is the second-largest shareholder with 28%. Thailand’s PTT Exploration and Production PLC owns 25%, with the rest owned by Myanmar Oil and Gas Enterprise. While most of the gas is exported to Thailand, the project provides approximately half of the power supplied to Myanmar’s largest city, Yangon.

Earlier

Myanmar’s military declared it was taking over the country for a year as it detained civilian leader Aung San Suu Kyi and other members of her party. Here's how the coup played out on the ground, and what it means for the nation’s democratic transition. Photo: Lynn Bo Bo/Shutterstock (Video from 2/1/21) The Wall Street Journal Interactive Edition

Advocacy groups say Total and Chevron, which launched the Yadana project in the early 1990s, have lobbied policy makers to head-off sanctions. A person familiar with Chevron’s operations in Myanmar said the company isn’t against sanctions but is concerned about potential legal retribution its staff could face from the government in Myanmar and disruption of energy supply to both Yangon, where homes, schools and hospitals could be affected by power cuts, and neighboring Thailand.

A spokesman for TotalEnergies said the company will comply with any sanctions imposed by the U.S. or EU, which if enacted would oblige all parties to put cash flows to MOGE in escrow. The company is engaging with authorities and other stakeholders about its concerns over supply disruption in Yangon and western Thailand, and the risk that stopping gas production might lead to forced labor under the junta, he said.

“‘Ultimately what we’re trying to do is stop them from being able to buy guns and living comfortably, so they may have to come to the negotiating table.’”

— Manny Maung, Myanmar researcher for Human Rights Watch

In response to what it called an “unstable context” in Myanmar, Total said in May that it had stopped some payments to MOGE, though the suspension applied only to a small percentage of total payments to the company related to gas transportation. The company has also ceased further exploration in the country, and says it will donate the equivalent of its tax dues to human-rights associations rather than putting the funds in escrow, which it says could expose its affiliates to arrest. Total condemned violence and human-rights abuses in Myanmar.

The spokesman said the company’s share of Yadana represents less than 1% of its total production, hence the project “is not material in terms of revenues or profits.” He said that there is no exchange of cash between Total and MOGE related to either exports or domestic sales. Exports, which account for most of the project’s revenues, are paid for by the Thai purchaser, PTT, making it impossible for Total to put the cash in escrow, he said.

In a statement in May, Chevron also condemned the violence and said it would comply with any U.S. sanctions. The company said it was concerned about potential unintended consequences, and defended its presence as a responsible actor in the country. It warned that breaching existing agreements “may open the door for another company that doesn’t share our values to take our place.”

Rights groups argue the potential risks of sanctions are outweighed by the known risks of engaging with a company that directly funds a rights-abusing regime. “Ultimately what we’re trying to do is stop them from being able to buy guns and living comfortably, so they may have to come to the negotiating table,” said Manny Maung, Myanmar researcher for Human Rights Watch. “I don’t think sanctions alone will be the final answer, but we need all angles of attack.”

Write to Feliz Solomon at feliz.solomon@wsj.com