President Donald Trump escalated US sanctions against Russia on October 22, placing Russia’s two largest oil companies on the US Treasury’s blacklist — a step his predecessor Joe Biden had rejected. The measures are rich in symbolic significance, marking the US administration’s journey to a more Russia-sceptical position, although the effect on the Kremlin may be slow to emerge.
The effectiveness of Trump’s gambit hinges on three critical factors:
- How rigorously the sanctions are enforced
- How quickly Russia can circumvent them
- Whether Washington can persuade Moscow’s allies to cut trade ties with the Kremlin.
At first glance, the sanctions pack a punch. Rosneft and Lukoil together account for half of Russia’s total oil exports — and 5% of global supply. Combined, they produce 5.3 million barrels of crude and refined products daily, exporting 3.5 million barrels.
Both companies and their subsidiaries now appear on the Specially Designated Nationals (SDN) list, barring all US firms and individuals from transactions without specific approval. More significantly, any countries or companies worldwide that continue doing business with the oil giants risk secondary sanctions. Under Biden, the US-blacklisted Surgutneftegaz and Gazprom Neft, Russia’s third and fourth largest oil companies. The new measures mean more than 75% of Russian oil exports fall under US sanctions.
Yet neither the Kremlin nor global oil markets panicked at news of the measures. Brent crude prices rose nearly 9% the week sanctions were imposed, then stabilized. Compare that to 2022, when Russia’s invasion of Ukraine sent prices soaring by a third. Moscow’s stock market jittered and the ruble weakened slightly, but there was no panic selling or capital flight — reactions one might expect when an oil producer faces export restrictions.
Several factors explain this measured response to what appear to be punishing sanctions.
First, the sanctions may never fully materialize. With a month before implementation, Moscow has time to engineer some compromise without halting its invasion or appearing to capitulate.
Second, effectiveness depends entirely on enforcement. The crucial element — secondary sanctions on non-US entities trading with Rosneft and Lukoil — won’t be imposed automatically. That decision rests with US authorities, who will tread carefully to avoid spiking gas prices.
The fate of sanctions against Gazprom Neft and Surgut is instructive: after initial export drops, both companies successfully restored sales through intermediaries and traders, with no significant secondary sanctions against their partners. Unless Washington takes a harder approach, Rosneft and Lukoil products will likely continue flowing.
The day after the announcement, Putin addressed the sanctions in a cautious, if not conciliatory, speech. “No self-respecting country makes any decision under pressure,” he said — a message aimed not just at domestic audiences but especially at China and India, urging them to resist US pressure.
The big factor for Russia will be how its two main oil buyers respond. Between January and September, 84% of Russian crude exports went to China (2.1 million barrels daily) and India (1.9 million barrels daily).
But the initial response was promising.
The Financial Times quoted a source at India’s leading oil refiner, Reliance Industries, saying it “does not buy from organizations under sanctions.” Bloomberg sources suggested Indian purchases of Russian oil could fall to zero, and Reuters reported that Chinese state companies have stopped buying seaborne Russian oil, with Unipec, Sinopec’s trading arm, halting purchases even before the US sanctions took effect.
Of the two, India is the weaker link. Currently negotiating a trade deal with the US, it may abandon Russian oil entirely. Even so, questions remain about Nayara Energy, where Rosneft holds a 49% stake — not enough to trigger automatic sanctions. Unlike British sanctions, the US Treasury made no mention of Nayara Energy.
China presents a more complex picture. Previous experience shows that Chinese state companies with Western assets and contracts observe sanctions. But smaller operators eagerly snap up cheap, sanctioned oil.
China’s approach to Iranian oil — almost entirely purchased by Beijing using a system isolated from Western markets — could be replicated for Russian crude if deemed necessary. China is less concerned than India about a trade war with the US, and has both the experience and capability to handle sanctioned oil. That issue may form part of discussions between Trump and China’s leader Xi Jinping in Seoul on October 30.
In the extreme scenario where Russian oil exports fell to near-zero, the budget would lose a quarter of its revenue, triggering an economy-wide crisis. At current prices, if seaborne exports ceased entirely, the economy would lose roughly 1.5% of GDP. More likely, if Indian refineries (excluding Nayara) dump Russian oil, the loss would approach 0.5% of GDP — potentially less if China absorbs some of that volume. Rising oil prices would also partially offset the loss.
The Russian budget would not feel the immediate effects. Government oil tax revenue is linked to production volumes and global prices, not company profits or export volumes. Falling exports would weaken the ruble — not necessarily bad for the budget short term — but would fuel inflation and keep interest rates elevated.
Oil companies themselves will suffer, though. Lukoil has already said it will sell its European and other foreign assets. The cost of sales would increase from the costs incurred in creating a web of traders and intermediaries, and the buyers would try to get wider discounts. Oil company profits would decline, forcing them to sell at steeper discounts while reducing investment. Eventually, they’ll pay less in profit taxes and cut output. However, that will not happen overnight.
If sanctions are fully implemented and India turns away from Russian oil, the most significant long-term consequence may be increasing Russia’s already significant dependence on China as its primary customer. That would give Beijing leverage to demand greater discounts, leading to even more Chinese goods flooding the Russian market and deepening Moscow’s reliance on its Asian neighbor; this hardly suits those in Washington hoping to decouple Moscow from Beijing.
Russian oil exports are unlikely to simply stop. Financial workarounds exist, and the outcome depends on India and China’s willingness to face secondary sanctions and their corresponding risk calculations. If China stands firm, Moscow’s dependence on Beijing deepens. If sanctions are fully enforced against third countries, the ruble and budget will face pressure, likely pushing the economy into recession with sustained high interest rates. Notably, the 2026 budget baseline assumed no further meaningful sanctions.
For now, the sanctions’ formulation leaves Russia some wiggle room. If the US administration were determined to apply more damaging measures, it would make a greater effort to enforce existing sanctions against oil producers, join the EU’s price cap mechanism, and further target the shadow fleet.
The sanctions alone are unlikely to force Putin to negotiate or collapse the economy. However, they will create long-term consequences, add to the slowing of the economy, and put more pressure on the budgetary spending in the future.
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.
More on this and other aspects of the Russian economy in a weekly summary produced by the independent publication, The Bell.
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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