U.S. Sanctions on Russia Have to Thread a Needle

 

 

“The Trump administration's recent oil sanctions have revived a dilemma for the West: how to hurt Moscow without inflicting economic self-harm.

 

Even after last month's sanctioning of Russia's two biggest oil producers, Rosneft and Lukoil, the U.S. has more tools, from blacklisting Russia's shadow fleet of oil tankers to using secondary sanctions on banks, traders and refiners in other countries.

 

But enforcing measures against one of the world's top oil producers risks triggering a supply shock and driving oil prices up. Squeezing Moscow is particularly fraught for Washington at a time when Trump's tariff policies have injected uncertainty into inflation trends.

 

The sanctions are already reverberating across Europe, where Rosneft and Lukoil still hold supply contracts and own facilities. Germany and several Eastern European states have pushed for exemptions.

 

Moscow's oil revenues will likely take a hit as tougher logistics and payment hurdles cut into profits and force deeper discounts, but analysts expect that exports will hold steady. Experience suggests Russia will turn to its shadow fleet, obscure networks of intermediaries and nondollar financial channels sidestep to sanctions.

 

The Russian oil sector has also been under pressure from Ukrainian strikes targeting its energy infrastructure.

 

The European Union and the U.K. have imposed tough sanctions, but enforcement power largely lies with the U.S. And unlike Europe, the U.S. often deploys secondary sanctions that penalize non-U.S. entities for dealings with sanctioned parties -- threatening access to the U.S. financial system.

 

"The fear of being frozen out of U.S. dollar-payment networks is very real," said Robin Brooks, a senior fellow at the Brookings Institution.

 

The U.S. and Europe aren't fully aligned in their sanctions policies. According to a tally by Brooks, the EU has targeted over 550 vessels from Russia's shadow fleet and the U.K. around 500. The U.S. has targeted some 216 tankers.

 

The Trump administration has also largely disengaged from an oil-price cap, imposed by the Group of Seven nations, that sought to permit Russian oil to be traded with non-Western nations only if the amount paid was below a cap, currently $47.60. The U.S. could also go after intermediary financial institutions, nondollar payment networks and banks that handle Russian oil transactions to disrupt Moscow's ability to bypass dollar-based sanctions.

 

Those gaps in the sanctions regime provide an opportunity for Moscow to continue stable exports. A January sanctions round by the Biden administration offers a case in point.

 

At the time, Washington blacklisted Gazprom Neft and Surgutneftegas, the third- and fourth-biggest Russian producers. But analysts at J.P. Morgan say that while documented exports from these companies fell, overall Russian seaborne volumes were maintained by using newly established entities not legally connected to the sanctioned companies as well as shadow shipping. Iran's oil has been under major sanctions for years, and yet it has still managed to keep exports high.

 

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Avoiding Dollar Is Tough to Do

 

Only about 5% of Russia's oil exports are settled in dollars, down from 55% before the events in Ukraine, according to J.P. Morgan.

 

The ruble now accounts for 24% and the Chinese yuan 67% of payments.

 

Still, the dollar's reach is long. Key parts of commodities trading -- including logistics, freight and insurance -- rely on it. Losing access to the dollar system makes every stage slower and costlier.” [1]

 

1. World News: U.S. Sanctions on Russia Have to Thread a Needle. Kantchev, Georgi; Norman, Laurence.  Wall Street Journal, Eastern edition; New York, N.Y.. 04 Nov 2025: A8.