The US has announced new sanctions against Russia’s two largest oil companies, signalling a major shift in US president Donald Trump’s approach to ending the war in Ukraine. The measures taken against Rosneft and Lukoil mark the first time the US has sanctioned Russia since Trump’s return to office in January.
The US treasury secretary, Scott Bessent, said the sanctions were needed because of “Putin’s refusal to end this senseless war” and that the companies targeted were responsible for funding the Kremlin’s “war machine”. He said that the US was also prepared to take further action.
Trump has called the sanctions “tremendous”, but experts remain split on how effective they will be in slowing Russia’s war and bringing Vladimir Putin to the negotiating table – with many saying it will come down to how aggressively the US enforces them.
What has been announced?
RM Block
The sanctions announced by the Treasury will see all assets belonging to Rosneft and Lukoil in the US frozen, while at the same time US companies and individuals will be barred from doing business with them. The measures also include sanctions against dozens of subsidiaries of the companies.
The US is also threatening secondary sanctions on foreign financial institutions that do business with Rosneft and Lukoil – which could include banks that facilitate sales of Russian oil in China, India and Turkey.
Rosneft and Lukoil are the two largest oil companies in Russia and account for nearly half of Russia’s crude oil exports, according to Bloomberg. Both companies were sanctioned by the UK last week, and on Thursday the EU will also announce a raft of new sanctions against Russia.
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Why now?
On the campaign trail in 2024, Trump claimed he would end the Ukraine war “in 24 hours” if elected. But since returning to the White House, he has found the task more difficult than he envisioned. His commitment to the war has flip flopped – from stating last month that Ukraine could regain all the land lost since the 2022 invasion, to this week suggesting the country’s Donbas region should be carved up in a way that would leave most of it under Russian control.
This week, Trump abruptly pulled out of a planned second summit with Putin, amid reports his administration was frustrated by preconditions set for the meeting by the Russian side. By Wednesday, his impatience was evident, as he told “every time I speak with Vladimir, I have good conversations, and then they don’t go anywhere.”
Trump has been resisting pressure from allies in Congress to impose further sanctions, but Russia’s unwillingness to shift its position – along with sustained lobbying from European allies – appears to have changed his calculations.
Will it work?
Taxes from the energy industry account for around a quarter of Russia’s budget and additional sanctions will help to further constrict Rosneft and Lukoil’s ability to do business, placing further pressure on Putin.
Marshall Billingslea, a treasury official during Trump’s first term, said the threat to target banks that do business with both companies was among the most critical measures announced, as it would make it more difficult for companies importing Russian crude oil.
“Even if the Indian, Chinese, Turkish refiners want to keep buying, their bank[s] may say ‘no’.”
Thomas Graham, a fellow at the Council on Foreign Relations, was more circumspect, telling Bloomberg: “If the White House thinks this is going to lead to radical change in the Kremlin’s conduct or Putin’s policy, they’re deluding themselves … The Kremlin has been very good at circumventing these kinds of sanctions.”
Others have speculated that the flow of Russian oil to India – a country that has emerged as major buyer in the past three years – could fall drastically as a result of the US sanctions. Trump has been pushing India’s prime minister, Narendra Modi, to end the imports and the new measures could accelerate those moves by giving Indian refineries a means of exiting contracts that have been locked in for years ahead, said energy analyst Thomas O’Donnell.
“This is very significant,” said O’Donnell. “They can ruin Russia as a petro-state.”
Ultimately, the impact of the new measures will come down to how active the US is in enforcing their threats against financial institutions who do business with Rosneft and Lukoil. The Biden administration chose not to impose sanctions on both companies over concerns that such a move could drive up energy costs at a time when rising inflation was finally being tamed.
Experts say that Trump’s campaign promise to keep petrol prices low and manage the cost of living crisis could dilute the impact of the new sanctions, if they start to dramatically affect the oil price.
What more could the US do?
Allies of Ukraine continue to push Trump towards other avenues of support – among them a plan to use Russian assets frozen at the start of the war to fund Ukraine’s defence. This week EU leaders are expected agree a €140bn ($162bn) interest-free loan for Ukraine backed by Russian assets frozen in Europe. Reports suggest the US has backed away from supporting such a plan itself.
Volodymyr Zelenskiy is also continuing to lobby the US for long-range weapons that could strike far inside Russia. Efforts to secure Tomahawk missiles at a White House meeting last week were dashed after Trump held a phone call with Putin.
On Wednesday, the Wall Street Journal reported that the Trump administration would let Ukraine use long-range missiles supplied by allies for attacks deep inside Russia, such as the British-supplied Storm Shadow cruise missiles used for a recent strike on a chemical plant in Bryansk, despite concerns from Washington about a potential escalation of tensions with the Kremlin.
But Trump denied on social media that he had lifted any restrictions, saying “The US has nothing to do with those missiles, wherever they may come from, or what Ukraine does with them.” - The Guardian
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