Will America’s new sanctions on Russian oil force a peace deal?
Donald Trump raises the pressure—but he may have to go further
DONALD TRUMP is frustrated with Vladimir Putin. Friendly calls, offers to meet, the prospect of post-war deals—none has tempted the Russian leader into a peace agreement. On October 22nd the American president snapped. In his first serious economic barrage against Russia since returning to the White House, Mr Trump placed sanctions on Rosneft and Lukoil, the country’s two largest oil firms, as well as on 34 of their subsidiaries. The aim, according to America’s Treasury, is “to degrade the Kremlin’s ability to raise revenue for its war machine and support its weakened economy". Oil prices leapt by 5% on the day (see chart).
Will Mr Trump’s sanctions force Mr Putin into submission? Rosneft and Lukoil together account for half of Russia’s crude production (5m barrels a day, or b/d) and exports (2m b/d). The new designations state that any bank which facilitates purchases of these companies’ oil, even by non-American buyers, risks being cut off from America’s financial system. That could deter buyers in China and India, which together snap up most of Russia’s oil. On October 23rd several large refiners from both countries said that they would suspend imports of Russian oil. Were more to do so, Russia would struggle to redirect output towards domestic refineries, which are reeling from Ukrainian drone strikes.
The measures mark a shift not just in Mr Trump’s attitude, but in America’s approach to sanctions. Under President Joe Biden, the White House went to great lengths to avoid any scenario that would have caused Russian oil exports to collapse, lest prices on American forecourts surge. Instead, it persuaded G7 allies to impose a “price cap" on imports of Russian oil by countries outside the bloc, which was intended to limit the Kremlin’s revenues without affecting the number of barrels sold. Now America seems happy for those volumes to decline, perhaps because the world is facing an oil glut. Scott Bessent, America’s treasury secretary, has suggested more penalties could follow.
It is unclear, however, whether America’s change of heart will be enough to deter buyers from ditching Russian supplies, which they buy at a discount. On October 23rd Reuters, a news service, reported that China’s state-owned refineries had suspended their purchases of seaborne Russian crude. But some also import healthy volumes by pipeline. And most of Russia’s seaborne barrels are usually bought by smaller, private refineries, which do not need access to dollars and so are mostly immune from American sanctions.
For their part, most Indian refiners import Russian crude through third- and even fourth-party traders that have not been blacklisted. They will probably cut their purchases only if instructed to by their political masters—and Narendra Modi, India’s prime minister, wants concessions from Mr Trump in return. Reliance, India’s largest refiner, does have a direct deal with Rosneft. On October 23rd it said it would adjust its purchases, based on advice given by the Indian government. It had previously indicated that it would stop buying oil from entities under sanctions. But it, too, imports some of its Russian barrels from third parties, notes Sumit Ritolia of Kpler, a data firm.
Even if they are not quite the all-out strike they first appear, Mr Trump’s measures will cause serious friction. Oil will be redirected, as happened in January when the Biden administration imposed a similar punishment on Gazprom Neft and Surgutneftegas, Russia’s third- and fourth-largest oil firms. Buyers will become more cautious, which will force sellers to rejig trading networks to assuage clients’ concerns. That could take time, especially as recent British and European sanctions against “shadow" tankers and sanction-dodging banks are making their lives more difficult.
In the short term, therefore, the friction will probably cause Russia’s export volumes to drop. For a more enduring impact, Mr Trump would either have to offer a quid pro quo to Mr Modi, or show that his measures have teeth by imposing sanctions on a clutch of Indian or Chinese refiners and banks. Adi Imsirovic, formerly of Gazprom, says that a full Indian boycott would be enough to really hurt Russia. But it would also boost global prices by at least $10-15 a barrel, he reckons, compared with the $4 rise so far. Mr Trump is desperate for a peace deal in Ukraine. Is he that desperate?
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