Trump sanctions have swift impact but will world stop buying Russian oil and gas? | Energy industry
Donald Trump’s mission to broker peace in Ukraine may boil down to this simple question: Can the US president persuade the world to stop buying Russia’s fossil fuels?
Last week, Trump imposed sanctions on Russia’s two largest oil companies, Rosneft and Lukoil, in an attempt to undermine Moscow’s ability to finance its war machine.
Tom Keatinge, founding director of defense think tank Rusi’s Center for Finance and Security (CFS), said: “The US has been more effective in 24 hours than the EU has been in the last six months. Trump is willing to say things that many others are too shy or diplomatic to say out loud. People have long been calling for Trump to pull back the sanctions hammer. This could be very telling.”
Sanctions mean companies that buy Russian oil risk losing access to the dollar-based financial system. This could have particularly big consequences for India and China, which have become Russia’s biggest importers of oil and gas since the Kremlin’s full-scale invasion of Ukraine more than three and a half years ago.
‘Economic pressure’
The effect was rapid. The sanctions triggered a 6% increase in the global oil price within hours, and reports began to emerge that Russia had immediately halted oil deliveries to the largest refineries in India, Moscow’s largest crude customer, and China’s largest state-owned oil companies.
Luke Wickenden, an analyst at the Center for Research on Energy and Clean Air (Crea), said a significant decline in Asia’s fossil fuel imports would be “devastating” for the Kremlin’s export revenues.
“Between January and September of this year, 86% of Russia’s crude oil exports, including pipeline deliveries, went to China and India. If Moscow loses access to these markets, it could lose about $7.4 billion in monthly revenue, meaning about $3.6 billion in monthly tax revenue would flow directly into the Kremlin’s war chest,” Wickenden said.
“But there is some hope. In September, crude imports from Russia by India’s state-owned refineries fell 38% month-on-month to their lowest levels since May 2022. If India cuts imports of Russian crude alone, it could lose roughly $1.6 billion in monthly tax revenues from the Kremlin.”
Russia’s monthly fossil fuel export revenues fell 4% last month to their lowest level since the full-scale invasion and are now half what they were in September 2022.
But while revenues are significantly lower than before, they continue to be supported by oil and gas purchases from buyers in Asia and Eastern Europe and seaborne shipments of liquefied natural gas (LNG) to the EU. Russia is also understood to be exporting millions of tonnes of crude oil via “shadow tankers”, a fleet of older ships used to evade Western sanctions.
Trump’s latest move to deprive Putin’s war machine of fossil fuel revenues comes after Putin received a cold response to his demands that India and China cut energy imports from Russia or face tougher trade conditions as a result.
China condemned the Trump administration’s “unilateral bullying” and “economic pressure” on what it described as “legitimate” oil purchases from Russia and vowed to take “harsh countermeasures” if its national interests were harmed.
Trump said that Indian Prime Minister Narendra Modi assured him in a phone call this week that Delhi “will not buy too much oil from Russia” and that he “wanted to see the war with Russia-Ukraine end.” But while Modi accepted Trump’s call to wish the prime minister a happy Diwali, he did not publicly confirm India’s plans to limit crude oil imports from Russia.
‘Shameful stain’ on the EU
According to Keatinge, the mission to break Russia’s energy dominance has two benefits for Trump. “There is an opportunity here to bring peace to Ukraine and profit to the United States,” he said.
The United States has become Europe’s largest supplier of LNG since the war in Ukraine caused imports of Russian gas through the pipeline to decline and seaborne gas shipments to slow. Last year it accounted for more than 55% of the EU’s LNG imports; Since negligible volumes in 2019.
Trump can expect US gas exports to Europe to increase after the EU decided last week to phase out all Russian gas imports, including LNG, from the beginning of 2027. Although Europe’s dependence on Russian energy has decreased, the continent still funds the Kremlin through Russian oil and gas purchases, which Keatinge said was a “shameful stain” on the EU.
The EU remains the largest buyer of Russian LNG, purchasing half of Russia’s total LNG exports, followed by China (22%) and Japan (18%), according to data from Crea. The bloc is also the largest buyer of pipeline gas, purchasing 35% of Russia’s pipeline gas, followed by China (30%) and Turkey (29%).
Last month, Hungary and Slovakia became the EU’s biggest importers of Russian gas, buying Russian fossil fuel worth 393 million euros and 207 million euros respectively. France, Belgium and the Netherlands also continued to import Russian gas.
France was the EU’s third largest buyer of Russian gas last year; It was importing €153 million worth of Russian fossil fuel, all in the form of LNG, some of which was later delivered to Germany. Belgium became the fourth largest importer with Russian LNG imports worth 92 million euros, while the Netherlands purchased LNG worth 62 million euros.
Keatinge said: “The EU were quick to say they were postponing standstill day to January 2027, but how many Ukrainians will die before then? Some European countries were able to find a way to go without imports from Russia almost immediately; this should have happened three years ago. Of course we have to take India and China into account, but we also have to look after ourselves.”
The long-term impact of Trump’s war on Russia’s fossil fuel revenues and whether it will bring peace to Europe and profits to the United States is not yet known. Industry watchers warned much will depend on how tightly sanctions are enforced and how those still dependent on Russia’s fossil fuels respond.
Keatinge, meanwhile, is optimistic. “Never bet against Trump,” he said.
