What do US sanctions against Russian oil companies mean for the war in Ukraine?

US President Donald Trump on Wednesday announced “massive” new sanctions against Russia’s two largest oil companies in a bid to pressure Moscow to end the war against Ukraine.

According to US Treasury Secretary Scott Bessent, the sanctions announced through Trump’s Truth Social platform target two major oil companies, Rosneft and Lukoil, that help finance the Kremlin’s “war machine”.

Bessent said in a statement that Russian President Vladimir Putin’s refusal to end the “senseless war” led to this move.

This comes a week after Britain imposed similar sanctions on Rosneft and Lukoil, and just a day after Trump said a planned meeting with Putin in Budapest would be shelved indefinitely.

“Every time I talk to Vladimir, I have good conversations, and then they don’t go anywhere. They just don’t go anywhere,” Trump said Wednesday after meeting with NATO Secretary General Mark Rutte to discuss peace negotiations.

“I felt it was time. We waited a long time.”

So what do these sanctions actually mean for the targeted companies, the war, and other countries around the world?

Sanctions imposed by the US Treasury Department’s Office of Foreign Assets Control (OFAC) effectively blacklist Russia’s two largest oil producers.

Rosneft, the state-controlled company headed by Putin’s close ally Igor Sechin, and Lukoil, a private company, account for nearly half of the country’s total crude oil exports, according to Bloomberg estimates.

The two companies export 3.1 million barrels of oil per day.

According to UK government estimates, Rosneft alone is responsible for almost half of Russian oil production; This accounts for 6% of global production.

“Rosneft is a vertically integrated energy company specializing in the exploration, extraction, production, refining, transportation and sales of oil, natural gas and petroleum products,” OFAC said in a statement. he said.

“Lukoil is engaged in the exploration, production, refining, marketing and distribution of oil and gas in Russia and internationally.”

Ending the Russia-Ukraine war has become a focus for Trump in recent months; but peace negotiations with Putin proved difficult for the US president.

Trump has repeatedly endorsed proposals to freeze fighting on existing front lines and suggested the region should be “cut off as is.”

Russia opposed the idea, with Kremlin spokesman Dmitry Peskov saying “the consistency of Russia’s position has not changed”; this was a reference to the desire of Ukrainian troops to leave the Donbas region in eastern Ukraine.

These new sanctions against such a critical pillar of the Russian economy may push Russia to reconsider this position. At least that’s what the US hopes for.

Dr. is a research fellow at the Center for International Security Studies at the University of Sydney. According to Stuart Rollo, sanctions have two main purposes.

Dr Rollo told the BBC: “To materially affect Russia’s industrial capacity to wage war and to force Russia to accept peace terms for fear of increasing effects of sanctions on their economy and society.”

“These will not affect the former. They may influence the latter if a skillful diplomatic balance is struck between the perceived consequences of continuing the war and the benefits and concessions that would be achieved through a negotiated peace.”

Michael Raska, Assistant Professor at the Military Transformation Program at Singapore’s Nanyang Technological University, told the BBC that sanctions “are unlikely to change the military balance in Ukraine” in the near term.

But he added: “As profit margins shrink, Russia will face difficult choices between maintaining socio-economic stability and financing a protracted war.”

Considering that taxes from the oil and gas industries account for nearly a quarter of the country’s federal budget, these sanctions are certain to deal a major blow to the Russian economy.

But the ripple effects could be felt much further away.

Oil and gas are Russia’s largest exports; Moscow’s biggest customers include China, India and Türkiye, the world’s two most populous countries.

China and India together account for most of Russia’s energy exports.

China bought more than 100 million tonnes of Russian crude oil last year, accounting for almost 20% of its total energy imports.

Similarly, oil exports to India, which accounted for only a small fraction of its imports before the Ukraine war, have risen to around $140bn (£103.5bn) since 2022.

Trump had previously imposed a 25% tariff on goods from India in what he called retaliation for such imports.

Trump said Indian Prime Minister Narendra Modi assured him during a phone call on Tuesday that Delhi “will not buy too much oil from Russia” because he, too, “wants to see an end to the war with Russia-Ukraine.”

Trump is calling on these countries to halt purchases of Russian oil altogether, forcing them to find alternative suppliers, possibly at higher cost.

But refusing to do so could result in China and India receiving secondary sanctions from the United States.

Edward Fishman, the State Department’s former senior sanctions official, suggested that the significance of new US sanctions depends on what happens next.

“Will the US actively threaten secondary sanctions against Chinese banks, UAE traders and Indian refiners dealing with Rosneft/Lukoil?” He wrote to X.

“I expect some withdrawal from deals with Russian oil, at least in the short term.”

On Thursday, a source with direct knowledge of the matter told Reuters that Indian state refiners were reviewing Russian oil trading documents to ensure oil would not come directly from Rosneft and Lukoil.

Reliance, India’s biggest buyer of Russian oil, also said it was adjusting its crude imports from Moscow in response to the sanctions.

While Trump’s sanctions news caused global oil prices to rise, Brent, one of the leading international crude oil indicators, recorded a 5% increase.

By comparison, Brent measured a 1.6% gain after the UK announced sanctions on Rosneft and Lukoil last week.

The announcement led the Russian embassy in London to warn that targeting major Russian energy companies would disrupt global fuel supplies and increase costs around the world, including for families and businesses in the UK.

These worrying predictions appear largely unfulfilled and pale in comparison to the rise measured in the last 24 hours as Trump’s announcement fuels uncertainty.

But Dr Rollo suggests that even with this newer case, the increase is unlikely to continue.

“In the medium to long term, I don’t expect this to impact oil prices globally unless secondary sanctions on shipping and financing related to these companies are strictly enforced,” he told the BBC.

With additional reporting by Peter Hoskins and Osmond Chia