When the U.S. Treasury imposed sanctions on two major Russian oil producers on Wednesday, it underscored Washington’s increasing frustration with Russian President Vladimir Putin’s refusal to agree to a 30-day ceasefire in the conflict with Ukraine or engage in meaningful negotiations. Lukoil and Rosneft were accused of assisting in financing the Kremlin’s military efforts, resulting in a surge in global oil prices and causing unease among Russia’s clientele.
The U.S. Treasury, in a recent media release, announced sanctions against Lukoil and Rosneft, along with over 30 of their subsidiaries. These two companies collectively export more than three million barrels of oil per day, as per the U.K. government, which had previously imposed sanctions on both firms. Rosneft, controlled by longtime Putin ally Igor Sechin, accounts for almost half of Russia’s oil production, while Lukoil, a privately held corporation, contributes to two percent of global oil production.
Despite Lukoil’s board of directors advocating for a ceasefire in Ukraine in March 2022, the threat of sanctions extends beyond these entities. The U.S. Treasury indicated it may target financial institutions and other entities conducting business with these oil producers, giving companies until November 21 to phase out transactions with them.
Following Russia’s full-scale invasion of Ukraine in 2022 and subsequent Western sanctions on its energy sector, Moscow redirected more energy exports towards China and India, its major oil customers purchasing oil at discounted rates. However, due to the sanctions, significant players are considering reducing their imports to avoid secondary sanctions and exclusion from U.S. financial markets.
India’s Reliance Industries, a top buyer of Russian crude, plans to lessen or halt its Russian oil imports, while Chinese state oil companies have reportedly suspended purchases of Russian seaborne oil. The impact of secondary sanctions on China and India varies, with India expected to wind down operations due to heavy reliance on Rosneft, while Chinese teapot refineries may be less affected.
In response to the sanctions, Russia expressed anger and disregard for the measures. The country’s Security Council deputy chairman criticized Trump for being “firmly on the warpath against Russia,” while the Foreign Ministry deemed the sanctions counterproductive with adverse effects on the global economy. Analysts predict financial effects on Rosneft and Lukoil but doubt significant impacts on Russia’s budget, suggesting that supply chains will adapt over time.
Internationally, Kuwait’s Oil Minister anticipates oil price increases post-sanctions but believes OPEC can offset any shortages by boosting output. The European Union backed the U.S. sanctions, introducing its 19th sanctions package, including a ban on Russian liquefied natural gas imports and sanctions on Moscow’s shadow fleet of over 100 ships. Ukrainian President Volodymyr Zelenskyy praised the U.S. move as a deterrent against prolonging the conflict and spreading terror.