Putting the oil squeeze on Putin
Strong world crude supply gives Trump room to tighten—and enforce—sanctions.
President Trump sure can turn on a dime on Russia. On Wednesday he finally decided to blacklist Russian oil giants Rosneft and Lukoil, only days after he said Vladimir Putin wants peace. This is progress, but the sanctions won’t turn the war unless the Administration keeps adding to the military and economic pressure.
Brent oil prices popped to $66 a barrel on Thursday from about $60 earlier in the week as markets digested the potential impact of the latest U.S. and European sanctions. The goal is to limit Russian energy exports that account for about a third of the Kremlin budget and fund its military.
The U.S. and Europe cut off nearly all Russian crude imports soon after Russia invaded Ukraine in February 2022. The G-7 later limited insurance for shippers that transport Russian crude sold at more than $60 a barrel. The Biden team pushed this price cap as an alternative to tougher sanctions that might have reduced Russian exports and raised U.S. gasoline prices.
Chinese and Indian refineries have continued to buy Russian oil, often carried by shadow fleets and sold through intermediaries. Europe has sanctioned these fleets to little effect. Russian seaborne crude exports have increased to 3.8 million barrels a day from about 2.8 million before the Ukraine invasion.
President Trump earlier wavered on tightening sanctions on Russian oil because he didn’t want to spoil the mood music with Mr. Putin as he tries to negotiate an end to the Ukraine war. He also worried about rising gas prices. But global oil markets are well-supplied thanks to increased production by Saudi Arabia and North American frackers.
U.S. and Canadian production hit records this summer and combined are about 3.4 million barrels a day higher than in 2019. Crude prices have fallen from $75 a barrel a year ago, and a projected surfeit next year could send them lower. U.S. shale drillers might welcome somewhat higher prices as their margins get squeezed by the President’s tariffs.
The sanctions on Rosneft and Lukoil—Russia’s two biggest oil producers—will bar refineries and banks that transact with them from U.S. financial markets and conducting business in dollars. The impact of the sanctions will depend on how strictly the Administration enforces them.
Four Chinese state-owned oil companies said Thursday they’ll suspend purchases of Russian seaborne oil. But most Chinese buyers are independent “teapot" refiners that pay in other currencies and are unlikely to be deterred. India may have a harder time dodging sanctions. Reuters reported that India’s major refiner, Reliance Industries, will stop importing oil under its long-term deal with Rosneft.
A trigger for the oil sanctions may have been a phone call this week in which Russian Foreign Minister Sergei Lavrov told Secretary of State Marco Rubio that Russia still wants all of Donetsk oblast in Ukraine—a nonstarter with Kyiv. Mr. Trump later cancelled plans to meet Mr. Putin in Budapest.
Good. The new economic pressure on Russia is welcome, but only if it lasts. Mr. Trump has wavered between wooing and lamenting Mr. Putin, which has let the Russian continue his campaign to annihilate Ukraine.
Mr. Trump might look up the road to Congress, where a majority wants to impose more serious penalties on Russia and its abetters. This includes a bill by Sens. Lindsey Graham and Richard Blumenthal for 500% tariffs on countries that buy Russian oil.
The Senate Foreign Relations Committee this week approved other sanctions bills. One would designate Russia a state sponsor of terrorism unless it returns abducted Ukrainian children. Another would sanction Chinese entities that export dual-use technologies to Russia. Tougher sanctions can drive up the cost of war for Mr. Putin, but they will be more powerful if they are accompanied by more weapons for Ukraine.
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