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Even by his standards, Donald Trump’s latest volte-face on Ukraine was fast. He began last week touting a summit with Vladimir Putin to discuss a ceasefire in Russia’s war. By the end, he had called off the summit and stiffened US measures on Russia’s economy for the first time in his second presidency, taking a step the Biden administration had always balked at: imposing sanctions on Russia’s largest oil companies, Rosneft and Lukoil. Combined with further EU curbs on Russian energy they constitute a powerful blow to Moscow’s war economy.
Trump’s patience with Putin snapped, again, after the Kremlin rejected US calls for a ceasefire along the current front lines days after the two men spoke by phone. The US president responded this time with a significant shift in his efforts to bring the Russian president to the table. His administration, like the last, had feared targeting Russian oil exporters could cause a damaging price increase. A recent moderation in global prices, and hopes that Gulf producers Trump has been wooing would be ready to pump more, seems to have given the White House confidence to act.
Together with Russia’s third and fourth biggest producers, Gazprom Neft and Surgutneftegaz, targeted in the last days of the Biden White House, the US has now blacklisted Russia’s top four oil companies, accounting for about four-fifths of its oil exports.
The measures will squeeze revenues from a sector that contributes about one-third of Russia’s state budget. The extent will depend in part on how its largest oil customers, China and India, respond and how effectively the sanctions can be enforced against Russia’s efforts to evade them using the web of front companies and shadow tankers and insurers it has built to try to skirt the oil price cap imposed in 2022.
But the threat of losing access to the dollar-based financial system by having anything to do with US-sanctioned entities is a powerful disincentive. India and China’s largest refineries were late last week looking at curbing imports of Russian oil.
The US president reversed his earlier insistence that EU countries must end their own imports of Russian oil before Washington would act. But the EU on Thursday imposed additional energy sanctions, tightening a ban on transactions by Rosneft and Gazprom Neft, and banning imports of Russian liquefied natural gas by January 2027. It is also targeting a further 117 tankers from Russia’s shadow fleet.
It is regrettable that Belgian opposition delayed EU endorsement of a separate initiative — a €140bn “reparations” loan backed by frozen Russian assets — which would have created a one-two punch for Moscow. EU leaders must find a way to do so by December, or the step-up in sanctions will be meaningless.
The new economic measures will not shift Putin’s calculus overnight. Russia’s president has been prepared to inflict deep harm on his country’s economic prospects in pursuit of a war he views as pivotal to his country’s security and his own legacy. Yet sanctions are wrongly decried by critics as ineffective because they have so far failed to crash Russia’s economy or stop the war. Their cumulative and pernicious impact is starting to show up in stagnating Russian growth, stubborn inflation and a deteriorating fiscal situation. In a war of attrition, any step that throws more sand into the gears of an opponent’s war machine is worthwhile.
Russia’s president has been convinced that his forces could always outlast Ukraine’s. If the EU can make good on its commitment to replace US funding and Trump’s White House holds firm on its new sanctions, the costs to Moscow will become much higher.
