Image via Atlantic Council
In energy markets, sanctions tend to leak. After Russia invaded Ukraine in 2022, America and its allies opted for an ingenious compromise: rather than banning Russian oil, they capped its price. The scheme kept crude flowing—so petrol prices stayed tolerable in Chicago and Chennai—while trying to deny the Kremlin excess profit. It was meant to be a surgical strike: inflict pain without shock.
Donald Trump has traded the scalpel for a hammer. On October 22nd his administration blacklisted Rosneft and Lukoil, Russia’s two biggest oil companies, along with dozens of subsidiaries. The stated aim was to “degrade the Kremlin’s ability to raise revenue for its war machine”. Yet the real pressure lies in secondary sanctions: any foreign bank or firm that helps the two giants sell oil could lose access to the American financial system.
That threat carries more weight than any tanker embargo. Nearly all oil deals, even those between Asian firms, clear in dollars through banks with American links. Cutting them off would be commercial suicide.
The timing matters. For three years India and China have been Russia’s economic lifelines. Together they buy roughly four-fifths of its seaborne crude. India, through refiners such as Reliance Industries, has thrived by importing discounted Russian oil and exporting fuels at global prices. China buys both by sea and through pipelines insulated from maritime enforcement. Now both are rethinking. Reliance has said it will “recalibrate” imports in line with government guidance—diplomatic code for hitting pause. Beijing has instructed state-owned oil majors to suspend seaborne purchases, though smaller “teapot” refiners are likely to keep buying.
Markets came under pressure. Brent crude rose by 5% on the day of the announcement. Traders, accustomed to the Biden-era cap, had not priced in a policy that might actually bite.
The financial mechanism is as important as the political one. Under Mr Biden, Russian oil travelled through a murky network of intermediaries—shell firms, “shadow tankers” and obscure insurers in Dubai or Hong Kong. They thrived because the rules were porous and the dollar system remained open. Mr Trump’s order tightens that net: it threatens the financing and insurance that underpin global energy trade.
Still, the sanctions’ reach will be uneven. India’s government may comply selectively, especially if Washington offers tariff concessions or defence deals in return. China, with pipelines immune to maritime tracking, will keep importing overland. Some Russian barrels will reappear under new flags or forged paperwork, routed through Malaysia or the Gulf. Yet each additional layer of subterfuge raises costs and lowers returns. For the Kremlin, that erosion may prove more corrosive than a sudden shock.
Mr Trump hopes to squeeze Vladimir Putin to the negotiating table, while signalling to voters that he is tougher than his predecessor. He also seeks leverage over Narendra Modi, offering trade sweeteners if India plays along. Unlike Mr Biden, who feared spooking petrol prices, Mr Trump seems willing to test the market’s tolerance for pain. Whether consumers share that tolerance is another matter.
By late November, companies must wind down their dealings with Rosneft and Lukoil. Analysts expect Russian exports to fall sharply after that date. If Asian refiners defy Washington, the White House could single out a few for punishment. The risk is that oil prices, already jittery, could surge further, undermining the world economy.
Sanctions, like oil, seep in unpredictable ways. America’s new embargo may well tighten the Kremlin’s finances. It may also strain ties with India, test China’s resolve and raise costs for everyone else. The only certainty is that the dollar remains Washington’s most potent weapon—and that every time it is fired, others look harder for ways to live without it. ■
