U.S. sanctions against Russia’s two largest energy companies, state-owned Rosneft and privately owned Lukoil, are perhaps the most significant economic measures imposed by the West since the invasion of Ukraine.
If fully implemented, they could potentially significantly choke off the flow of fossil fuel revenues that fund Russia’s war machine, but their power does not lie in direct denial Russia access to tankers, ports and refineries that drive the oil trade, but the WE financial system that greases the wheels.
Since the invasion, the Russian government has proven adept at evading sanctions, aided and abetted by economic allies and an oil industry with decades of experience.
Last war in Ukraine: Zelensky expresses relief at Trump’s decision
Please use Chrome browser for a more accessible video player
New American sanctions against Russia: what do we know?
While the West, mainly the EU, has largely turned off the taps and stopped buying Russian oil, China, India and Turkey have become the biggest consumers, with a ghost fleet of tankers ensuring continued exports.
Data from the Center for Research on Energy and Clean Air (CREA) shows that while fossil fuel revenues fell by more than 1 billion euros a day before the war, they have remained above 600 million euros since the start of 2023, only dipping to around 500 million euros last month.
None of this oil is destined for the United States, but these sanctions will directly impact the ability of Russian companies, and everyone who does business with them, to operate in the American financial orbit.
According to the order from the US Office of Foreign Assets Control, the sanctions block all assets of the two companies, their subsidiaries and a number of named individuals, and also prevent US citizens or financial institutions from doing business with them.
It also threatens direct or secondary sanctions against foreign financial institutions that “facilitate transactions… involving the Russian military-industrial base.”
Vladimir Putin chairs a meeting in Moscow.
Photo: Sputnik/Reuters
In practice, the measures are expected to prevent both companies from accessing not only dollars, but also commercial markets, insurance and other services with any financial connection to the United States.
Combined with similar measures announced by the United Kingdom earlier this month, analysts believe they can have a real deterrent effect on the Russian oil and gas market.
Russian oil customers in China, India and Turkey will also be affected, with the largest companies, public and private, unwilling to take the risk of engaging directly with sanctioned entities.
Indian companies are already reportedly “recalibrating” their imports following the announcement, which came just a week after Donald Trump announced an additional 25% import duty on Indian goods as punishment for the country’s dependence on Russian oil.
Learn more:
Russia reacted with bravado to US sanctions
Trump imposes sanctions on Russia’s two largest oil companies
This does not mean that Russian oil and gas exports will cease. There are other unsanctioned Russian energy companies that can still trade, and since the first barrel of oil was tapped, the industry has proven adept at evading sanctions designed to cut off its supply from one country or another.
Any significant increase in the price of oil beyond the 5% seen following the announcement could also put pressure on the White House, which is at least as sensitive to domestic fuel prices as it is to foreign wars.
But Kpler analysts expect the sanctions to cause “an immediate, short-term disruption to Russian crude exports, as it will take time for sellers to reorganize and rebuild their trading systems to circumvent the restrictions and ease buyers’ concerns.”
And Russian gas will, for the moment, continue to flow towards Europe, where disgust for Vladimir PutinThe country’s imperial ambitions have not dampened the appetite for its fuel. While the EU imposed sanctions on liquefied natural gas (LNG) this week, these will not be fully implemented until 2027.