The war economy that has fueled Russia’s all-out assault on Ukraine for 45 months has been funded by Moscow’s exports of oil and gas and, critics say, the West's unwillingness -- as well as China and India's disinterest -- to fully turn off the spigot.
Now the United States -- along with the European Union and Britain -- has taken aim at some of Russia’s biggest oil and gas companies, and their sprawling networks of subsidiaries and affiliates.
The US Treasury Department announced on October 22 that it was sanctioning state-controlled Rosneft and privately owned LUKoil -- Russia’s two largest oil companies, whose exports go a long way toward filling the Kremlin’s coffers.
A day later, Brussels targeted Rosneft and Gazpromneft, another major oil company that is a subsidiary of state-controlled gas giant Gazprom.
"These are very big -- against their two big oil companies," US President Donald Trump said at the White House on October 22, describing the sanctions as "tremendous.”
So will it work? Will blacklisting Rosneft and LUKoil run Russia’s war machine dry
Not immediately.
“I think the short-term impact of these sanctions will be limited,” said Aleksandra Prokopenko, a former adviser at the Russian Central Bank, now an analyst at the Carnegie Russia Eurasia Center in Berlin.
“Both companies were likely preparing for them. Furthermore, significant volumes of oil exports are denominated in yuan and rubles, so I don't expect any dramatic impact on the budget,” she said.
The sanctions were the first significant measures taken by the Trump administration, said Maria Shagina, a researcher at the International Institute for Strategic Studies in Berlin, reflecting frustration with “Russia's stalling tactics” in efforts to tamp down, or end, the Ukraine fighting.
However, “it remains to be seen how seriously the Trump administration will enforce the measures,” she said.
For example, Shagina said, the US announcement postpones enactment of the sanctions for a month: until November 21.
“More importantly,” she said, “it remains to be seen whether the US Treasury will take an extraterritorial approach and target Chinese and Indian entities, including financial institutions, with secondary sanctions.”
Jennifer Kavanaugh, a senior fellow at Defense Priorities, a Washington think tank, said she doubted the sanctions would have a major effect on the Ukraine war.
“For Putin, this war is existential,” she said. “He has shown that he is willing to bear significant costs to achieve his objectives, in terms of lost Russian lives and economic and military expenses. This latest round of sanctions will not change that calculus.”
The China (And India) Card
Since the February 2022 invasion, the West has tried to put Moscow in a sanctions vise; Russia is now the most-sanctioned country in the world.
Its economy, however, has defied predictions from those who expected Moscow would be brought to heel as it runs out of money or the ruble tanks or hyperinflation takes off.
The economy has indeed slowed, though that’s the result mainly of policy intervention: the Central Bank hiking interest rates to tamp down soaring inflation. The government has recently announced tax hikes to maintain revenues.
In the meantime, Moscow has decidedly not taken its foot off the gas of its war machine, even in the face of eyewatering casualty rates.
Western sanctions have turned out to be more porous, and less effective than experts had hoped. That’s allowed Moscow to continue selling oil and gas to eager Chinese, Indian, Turkish, and other buyers.
Russia earned $13.35 billion from crude oil and fuel exports in September, according to the International Energy Agency, down sharply from July. The drop was due mainly to export constraints: Ukraine’s drone campaign targeted Russian refineries and pipelines and cut as much as 30 percent of the country’s refining capacity.
Also watering down the sanctions: Europe, where some countries – Slovakia and Hungary -- continue to buy Russian oil and several others – the Netherlands, France, and Belgium -- continue to buy Russian liquefied natural gas, or LNG. EU countries also buy a substantial amount of Russian gas via the TurkStream pipeline.
Trump has hammered Europe on this.
“They’re funding the war against themselves. Who the hell ever heard of that one?” he said in a speech at the United Nations last month. “They have to immediately cease all energy purchases from Russia. Otherwise, we are all wasting a lot of time.”
Most European countries phased out Russian crude oil imports in 2022, and then gasoline and refined products the following year. The European Union says it will phase out all remaining Russian LNG imports by the end of 2027. The bloc also sanctioned more than 20 Chinese and other foreign firms linked to Russian oil imports.
Further softening the edges of the sanctions: Rosneft and LUKoil have had time to build alternate systems and supply chains.
“The effectiveness of the sanctions will depend on enforcement and the strength of US alliances,” said Leslie Palti-Guzman, an energy expert and founder of Energy Vista, a consultancy. “Russian companies have mastered sanction evasion, but Western technologies are keeping close watch on ship-to-ship transfers, spoofing, and potential buyers.”
The new sanctions “will definitely be mitigated by sanctions proofing that not only Rosneft and LUKoil have done but also their buyers,” said Rachel Ziemba, a sanctions researcher at the Center for a New American Security in Washington.
“It will have some effect sure, and more than Europeans acting alone, but the real impact will depend on US willingness to not just threaten secondary sanctions on foreign financial institutions and ports but to do it," she said.
It’s unclear how exactly India and China -- the two biggest buyers of Russian oil exports -- will respond. China is one of Moscow’s top allies and trading partners, sourcing much of its Russian energy via Siberian pipelines.
India has so far resisted US pressure to curtail its use of Russian energy, and Trump has lashed New Delhi on the issue. In August, he imposed punitive tariffs, citing India’s Russian imports.
That may be changing.
India’s top buyer of Russian oil, Reliance –- which has a contact with Rosneft to import around 500,000 barrels daily –- reportedly moved to halt those imports in the wake of the US announcement.
“New Delhi is much more susceptible to the threats and is expected to wind down the operations,” Shagina said. “However, it will be more difficult to scare away Chinese teapot refineries which are less integrated into the global energy markets.”
“Beyond China, which buyer is still willing to risk importing Rosneft’s oil?” Palti-Guzman said.
