Oil Spikes as US Sanctions Russian Producers to Undermine Putin’s War Machine

A rising tide lifts all boats, but rising US sanctions could sink Russian oil tankers. 

On Thursday, oil prices leaped more than 5%, the biggest single-day gain since June, a day after the United States levied new sanctions on Russia’s top two oil producers. Intended to pressure President Vladimir Putin to end the full-scale invasion of Ukraine that he ordered more than three years ago, the new measures also sparked questions about the immediate future of global oil supplies and prices.

Turn Off the Taps

The new sanctions ordered by US President Donald Trump and implemented by the Treasury are very straightforward. First, all the US assets of Rosneft and Lukoil, the two largest Russian oil producers, are frozen. Second, US companies and individuals are blocked from doing business with them. Additional sanctions may be placed on foreign-based financial institutions that work with Rosneft or Lukoil, cutting off their access to international markets. “Bye, Felisiya,” in other words.

It all comes down to a stalemate in recent negotiations with Putin to end the war in Ukraine. Trump said Wednesday that talks did not “go anywhere,” and Moscow has stuck to hard-line demands, including that Ukraine cede large chunks of its territory, which Kyiv and its European partners have balked at. Treasury Secretary Scott Bessent emphasized that the new sanctions are designed to weaken Russia’s ability to fund its invasion by targeting its most important revenue source: taxes from the oil and gas industry, which make up about a quarter of the state budget. And existing US and European sanctions on the sector have proven effective: Russia expects oil and gas tax revenues to fall 22% to $100 billion this year, according to State Duma estimates published last month. The latest round of sanctions is poised to send its biggest customers shopping elsewhere:

• Oil importers in India, which takes in 1.6 million to 1.8 million barrels of Russian crude per day, or more than a third of its oil shipments, are preparing for massive cuts to Russian imports in order to comply with US sanctions, the Mumbai-based Economic Times reported Thursday. Privately held Reliance Industries, India’s top purchaser of Russian crude, is considering halting Russian imports altogether, while state-owned Indian Oil and Hindustan Petroleum plan to cut off Rosneft and Lukoil, the paper said.
• Meanwhile, China’s state oil majors are suspending their Russian oil purchases, sources told Reuters. China procured roughly 17% of its crude imports through August from Russia, and is Moscow’s biggest customer (India is No. 2).

Shares the Wealth: Indian and Russian buyers, and possibly those in Turkey, Moscow’s third-biggest customer, will have to seek alternatives, which could disrupt supplies and push oil prices closer to $70 a barrel (international benchmark Brent crude topped $65 Thursday). Naturally, that would benefit shares in oil majors: British producers Shell and BP rose roughly 3% in London on Thursday, although US majors ExxonMobil and Chevron were more muted in New York, up 1.1% and 0.6% respectively.