President Donald Trump’s sanctioning of two Russian oil giants was dubbed a “groundbreaking move” by Russian President Vladimir Putin’s former deputy energy minister but the U.S. president needs to go further to really hurt Russia’s economy.
Vladimir Milov, who was a Russian government minister in 2002 before quitting and becoming a Kremlin critic, told Newsweek that the measures against Rosneft and Lukoil signaled a change in Trump’s approach to punishing Russia for its invasion of Ukraine but questions remained over enforcement.
Milov said Trump is “seriously breaking the ice with these measures,” but Moscow could find workarounds and waivers that could water down the sanctions.
Richard Portes, professor of economics at the London Business School, told Newsweek that blocking the shadow fleet of tankers taking Russian oil through the Baltic would be a more important move.
Newsweek has contacted the Kremlin for comment.
Why It Matters
Trump had held off introducing new restrictions against Russia for months but announced new sanctions on Russia’s two largest oil companies on Wednesday, complaining that his peace talks Putin were going nowhere.
The European Union added to the pressure by adopting its 19th sanctions package against Moscow, targeting Russia’s key energy revenues, financial networks and technology supply chains.
Trump’s first direct sanctions on Russia in his second presidential term were welcomed internationally and deliver a blow to Russia, days after the U.S. president did not commit to providing Kyiv with Tomahawk long-range missiles as Ukraine had hoped.
However, Milov said while the new sanctions are important, Russia’s economy would be hurt more if the U.S administration “rejoins the collective sanctions regime imposed by the West.”
What To Know
The sanctions target the financial infrastructure around oil flows from the firms by warning international banks against facilitating payments.
Milov was Russia’s deputy energy minister in 2002 during Putin’s first presidential term before resigning and is now an opposition figure, critical of his former boss and his aggression in Ukraine. He told Newsweek that Trump’s sanctions were significant after months of reluctance to do anything against Russia directly and signaled a change of his approach.
Already they have had a very negative psychological impact in Russia domestically because the Kremlin thought that the Trump administration was one of their last hopes in an increasingly unfavorable sanctions environment, he said.
Trump announced Wednesday “tremendous” sanctions on Russian energy exports, which targeted Rosneft and Lukoil—two major oil corporations that fund the Kremlin’s “war machine”, according to U.S. Treasury Secretary Scott Bessent.
However, they will not deliver a knockout blow to the Russian economy because what matters with sanctions is consistency, proper enforcement, closing loopholes and that it was “a long game,” according to Milov.
Nevertheless, Russia will have to find complicated workarounds to sell the oil, and it will lose a lot of money with more discounts, “so that’s a pretty serious measure in itself,” he said.
Collective Response to Russian Oil Exports
However, a bigger blow would be if the U.S effectively rejoined the collective sanctions regime imposed by the West in lowering the oil price cap, limiting how much seaborne Russian oil can be sold for, as well as tackling Moscow’s sanctions-busting shadow fleets.
Milov said the Russian oil firms had been preparing for sanctions and so would have contingency plans. There are also questions over whether there will be waivers on the firms’ oil, such as from Hungary, Slovakia and Turkey.
The Biden administration sanctioned Russia’s Gazprom Bank but these countries asked the United States for waivers and got them, and a repeat of this could water down Trump’s move, Milov added.
Analysis by Oxford Economics sent to Newsweek on Thursday said that Russia has alternative export channels through its shadow fleet, non-Western insurance, and non-dollar payment systems, so did not expect “a meaningful loss of supply.” It added that any impact is likely to fall more on pricing than availability, with Russia having to offer wider discounts to compensate buyers for higher legal and logistical risk.
Higher insurance and financing costs would be reflected as a sanctions premium on Russian crude, widening the discount to Brent and eroding Russia’s net revenue, the analysis said.
However, “any such discount is likely to be temporary, as past episodes show that new sanctions rules are eventually absorbed and worked around over time,” Oxford Economics added.
Brett Erickson, a sanctions expert, told Newsweek that the pain to Russia’s economy would not be immediate and that Russia’s economy has proven resilient by finding alternative buyers, especially in India.
“Until we see whether those buyers reduce their intake, the true economic damage may remain limited,” he said. “The real inflection point will come if secondary markets start pulling back under pressure.”
Portes, an expert on Russia’s economy, said sanctions on Lukoil and Rosneft “will have little or no impact” and it would be more important to tackle Russia’s shadow fleet of oil tankers.
“Ukraine is effectively disabling much of Russia’s oil refining capacity,” he said. “These are the ways to hit the Russian war machine.”
What People Are Saying
Vladimir Milov, former Russian deputy energy minister and Kremlin critic: “This signals a change of Trump’s approach. He was clearly reluctant for months to do anything against Russia directly. He is seriously breaking the ice with these new measures. That’s a pretty groundbreaking move.”
Brett Erickson, adviser to Seton Hall’s School of Diplomacy and International Relations: “It’s too early to gauge the full impact of these sanctions. Rosneft and Lukoil are Russia’s two largest oil exporters, and that alone makes this a significant move.”
What Happens Next
Russia has issued a defiant response to the new sanctions. Russian foreign ministry spokeswoman Maria Zakharova said Moscow had developed a “strong immunity” to sanctions.
Erickson said that Russia has demonstrated an ability to adapt to sanctions, particularly through its shadow fleet and complex re-routing networks and so the real test will be whether this limits Moscow’s capacity to monetize crude in the future.
