Background on the Companies and Their Significance
The United States has imposed sanctions on Russia’s two largest oil producers, Rosneft and Lukoil. These are the first sanctions against Russia since Donald Trump returned to the U.S. presidency. The sanctions freeze all assets of Rosneft and Lukoil in the U.S. and prohibit American businesses from conducting transactions with these companies.
Rosneft and Lukoil are among Russia’s largest companies, with the government holding a majority stake in Rosneft. Together, they account for 55% of Russia’s oil production and also produce natural gas. These companies are significant contributors to Russia’s state finances, which the Kremlin uses to fund its war against Ukraine.
Impact on Russia’s Oil Trade
The sanctions target Lukoil and Rosneft, placing them on the U.S. Specially Designated Nationals (SDN) list, a registry closely followed by many countries and feared in the business world. Companies doing business with Russian entities risk secondary sanctions that would deny them access to U.S. banks, traders, transporters, and insurers, the backbone of the commodities market.
Energy expert Alexei Gromov stated that the sanctions aim to prevent Russia and India from trading in dollars, as New Delhi is a crucial importer of Russian oil. “This is a significant blow that will cause difficulties in supplying Russian oil to India,” Gromov, director of the Moscow Energy and Finance Institute, told AFP.
However, the sanctions are unlikely to affect Russia’s trade with China—the largest buyer of Russian oil—as Moscow and Beijing trade in their national currencies. Nevertheless, they could impact Rosneft and Lukoil’s overseas projects, as partners may be reluctant to work with them due to the associated risks, according to Georgy Bovt, an analyst at Russia’s Council on Foreign Relations, speaking to Russian radio station BFM.
US Policy Shift
Trump initially sought to strengthen ties with Russia at the start of his presidency but has grown increasingly frustrated by Russia’s reluctance to agree to a ceasefire. These sanctions show Trump has gone further than his predecessor, Democrat Joe Biden, who targeted smaller oil producers, according to Bovt.
“Adding Russia’s largest oil companies to the SDN list… even Biden didn’t go that far,” said Bovt.
Jorge León from Norwegian research center Rystad Energy predicted that the restrictions would lead to “fewer official crude purchases from Russia and possibly slightly more parallel trade,” as commented to AFP.
Expert Opinions on the Impact
Capital Economics analysts David Oxley and Nicholas Farr described the sanctions as a “significant escalation” that “could be a big enough shock to turn the global oil market into a deficit next year.”
However, Elisabeth Braw from the Atlantic Council was more cautious, stating that many strong economies “essentially can intervene and buy any product we are sanctioning.”
“We should not assume that the sanctions will have a significant impact,” added Braw from the U.S.-based think tank.
Russian President’s Response
Despite the sanctions, Russian President Vladimir Putin described them as “serious” but not severe enough to heavily damage his country’s economy, which has adapted to numerous international penalties.
