The dying days of the Biden administration saw the US unveiling the most severe restrictions against Russia’s oil industry since 2022, when the Kremlin launched its all-out war of aggression in Ukraine.
The US blacklisted two top oil producers, two major insurers, and a number of small companies trading in Russian oil, but the most important step was a ban on 183 oil tankers of the so-called shadow fleet.
The two oil producers, Surgutneftegaz and Gazpromneft, are large but only account for about half of Russia’s total oil and refined products exports of about 7 million barrels a day. It would be relatively easy for Russia to circumvent sanctions against the two — they can swap export contracts with “clean” firms, or create a new company exclusively for the export of their crude and related products.
The sanctions against the insurers might be more costly, as Russia’s customers could start shunning all Russian insurance companies from fear of further sanctions. That would require higher insurance premiums and demands for wider discounts on Russian oil.
However, the most damaging element might be the sanctions against the tankers. The blacklisted vessels’ cumulative capacity is close to a third of the total exports of Russian crude and related products. The immediate reaction of Russia’s top clients, India and China, was a pledge not to service these vessels at their ports after the grace period expires in February. Consumers are scavenging markets in search of alternatives to Russian crude, which is traded with a widening discount (so cutting Russian revenues.)
What happens next? The credibility of the new sanctions regime is very largely in the hands of Donald Trump’s administration. To make the sanctions work, the US must persuade Indian and Chinese buyers that it will not shy from imposing secondary measures against evaders.
All US measures are designed to involve complete isolation from the dollar market and, in most cases, from the Western financial and banking systems as a whole. Unless it turns out that the secondary sanctions are real and imminent, the buyers would be inclined to ignore the restrictions or circumvent them.
True, as the trades in Iranian and Venezuelan oil show, there are ways to circumvent the US sanctions: through ship-to-ship (or STS) transfer, when oil is moved between two vessels at sea, to cargo discharge and reload, when sanctioned crude is offloaded onshore and is mixed with “clean” oil for further sales.
To pressure Russia, President Trump would need to persuade President Putin that he is ready to hit hard. The existing sanctions provide him with means to target these circumvention practices and Russia’s main clients in India and China. If the price of oil doesn’t rise too high for too long — something any US administration finds hard to tolerate — the new measures provide a blueprint to widen the net and catch more ships and traders.
In all likelihood, Russia would still be able to sell some crude, but at a lower price and with higher costs, so cutting the substantial revenues (some $192bn last year alone) that help finance its war machine.
On the other hand, lenient implementation of the secondary sanctions might be used as a substantial carrot if the US is seeking the Kremlin’s goodwill. True, Russia would prefer not to see the sanctions’ Sword of Damocles hanging over its oil revenue, but a sword is sometimes better left dangling than slicing.
Alexander Kolyandr is a Non-Resident Senior Fellow at the Center for European Policy Analysis (CEPA) specializing in the Russian economy and politics. Previously, he was a journalist for the Wall Street Journal and a banker for Credit Suisse. He was born in Kharkiv, Ukraine, and lives in London.
Europe’s Edge is CEPA’s online journal covering critical topics on the foreign policy docket across Europe and North America. All opinions expressed on Europe’s Edge are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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