U.S. President Donald Trump’s sanctions on Russia in late October may have been belated—they were the first of his second term—but they already seem shatteringly effective.
Big buyers of Russian oil, especially in Asia, are forsaking Urals crude, and major Russian oil companies such as Rosneft and especially Lukoil are under pressure worldwide as the specter of U.S. secondary sanctions chokes their business and prospects.
U.S. President Donald Trump’s sanctions on Russia in late October may have been belated—they were the first of his second term—but they already seem shatteringly effective.
Big buyers of Russian oil, especially in Asia, are forsaking Urals crude, and major Russian oil companies such as Rosneft and especially Lukoil are under pressure worldwide as the specter of U.S. secondary sanctions chokes their business and prospects.
Russia’s economy is already shaky (interest rates are in the double digits, inflation is still a bugbear, and what economic growth there is is fueled by rampant and unsustainable defense spending), and its earnings from fossil fuel exports were already at their lowest point in September since the war began. Now things are going to get dire.
“You never know what the straw that breaks the camel’s back is,” said Edward Fishman, a former U.S. government official now at Columbia University’s Center on Global Energy Policy. “The benefit of stopping the oil trade is that you are hitting the Russian military-industrial complex at its source.”
China, the biggest buyer of Russian oil, is a good case in point. Beijing long shrugged off U.S. threats about China’s reliance on Russian energy and even increased its purchases late this summer of Russian natural gas, flouting U.S. sanctions. But in the wake of Trump’s October announcement, not only have Chinese state-owned refiners halted purchases of Russian oil, but some of the smaller, independent “teapot” refiners have, too. Even pipeline trade of oil from Russia to China is under threat: Big Chinese refiners in the northeast are not penciling in any Russian volumes for the next few months. That is a major shift.
But it’s not just China. India is Russia’s second-largest customer for oil. Trump’s threat this year of “secondary tariffs” on the country if it didn’t stop buying Russian oil did little to alter New Delhi’s calculus. But these new sanctions have. Two-thirds of the Russian oil that was headed to India now seems without a destination; only a Rosneft-run refinery really seems keen on buying the stuff.
“The sanctions on Rosneft and Lukoil are by far the strongest steps taken yet against Russian oil. The reason we know that is [by seeing] how quickly the market reacted,” Fishman said. “Secondary tariffs led to an increase in India’s reliance on Russian oil. It goes to show that in economic statecraft, the weapons matter, and tariffs are much less effective than sanctions.”
Previous Western sanctions had put some of Russia’s smaller energy companies under threat. But the latest measures went after Moscow’s two prize pigs, and Lukoil has been reeling ever since.
At first, it tried to sell all of its international holdings to a Swiss-based firm in a bid to sidestep the impact of U.S. sanctions. The U.S. Treasury Department put the kibosh on that idea. Then Bulgaria, which is overwhelmingly reliant on a Lukoil refinery for fuel, said it would nationalize the complex to avoid headaches from the United States. The situation is still complicated, but it doesn’t look good for Lukoil.
Then in Iraq, where Lukoil operates a major oil field that produces nearly half a million barrels of oil a day (the West Qurna-2 field by itself is essentially a Libya or an Ecuador), the company declared force majeure on Monday, saying it could not continue operations. Baghdad is still seeking clarity, but here again, it doesn’t look good for Lukoil.
And that is all without accounting for measures beyond economic statecraft that are also impacting Russian oil. Ukraine has intensified its drone war against Russia’s oil complex, striking targets hundreds of miles from the border. Overnight, two Russian refineries were set alight, accounting for a nontrivial portion of Russia’s already diminished domestic refining capacity. That kinetic offensive reduces morale, margins, and more—forcing cheaper Russian crude onto shrinking global markets, where it finds fewer and fewer buyers willing to chance running afoul of U.S. sanctions.
That’s not to say the Trump administration has applied pressure on Russia uniformly. Trump gave Hungary a free pass last week to continue importing Russian oil and gas for at least a year, but Hungary has an election coming up, and Prime Minister Viktor Orban is an ideological ally of the U.S. president.
The ultimate goal of U.S. and Western sanctions is to crimp Russia’s ability to fund its war on Ukraine and thus to make peace talks possible. Arguably, that stranglehold could have been made more effective from the start of the war, rather than in year four, but late is better than never.
However, emboldened by some modest battlefield successes, Russia seems grimly determined. Despite having sustained heavy casualties in its effort to take a city in eastern Ukraine that once held 60,000 people, it appears close to finally achieving that goal. The Kremlin insists that it will only come to the peace table when its initial goals of the invasion of Ukraine are met: namely, “denazification” and “demilitarization” of a sovereign, independent, neighboring country.
Bankrupting Moscow is necessary, but is it sufficient?
This post is part of FP’s ongoing coverage of the Trump administration. Follow along here.
