New sanctions imposed by the Biden administration target Russia’s energy sector, focusing on major oil companies Gazprom Neft and Surgutneftegas, alongside 183 vessels in Russia’s shadow fleet. Aimed at disrupting production and supply chains to weaken the Kremlin’s financial resources amid its aggression against Ukraine, these measures could cost Russia billions monthly. The timing reflects changes in global energy dynamics, allowing a firmer stance without destabilizing oil markets as the U.S. also prepares significant military aid for Ukraine.
New Sanctions Target Russia’s Energy Sector
The outgoing administration of President Joe Biden is implementing what is being described as the most stringent sanctions yet against Russia’s energy industry. The U.S. Treasury Department announced on Friday that the new measures will specifically target two major Russian oil corporations, Gazprom Neft and Surgutneftegas.
Impact on Russian Oil Trade and Market Stability
In addition to the oil companies, 183 vessels, primarily part of what the U.S. identifies as Russia’s shadow fleet, will face sanctions. This includes tankers and cargo ships that Russia employs to bypass existing restrictions on oil transportation. The sanctions will also extend to specific liquefied natural gas (LNG) projects, associated infrastructure, subcontractors, service providers, traders, and maritime insurers.
The goal of these new actions is to disrupt the production and supply chains within Russia’s energy sector, ultimately undermining the Kremlin’s financial capabilities in its ongoing aggression against Ukraine. The U.S. government has stated, “Our sanctions act like sand in the gears of the Russian war machine.” The UK is anticipated to join in these sanctions, with estimates suggesting that the measures could cost Russia billions of dollars each month.
In an effort to destabilize the Russian economy further, the U.S. aims to weaken the ruble, fuel inflation, and compel the central bank to increase interest rates, which are already at historic levels. This could pose additional challenges for Russian businesses.
Interestingly, the U.S. opted for a more measured approach by refraining from sanctioning Rosneft, the largest oil producer in Russia. Reports indicate that key players involved in the shadow oil trade were also excluded from these sanctions.
The timing of the sanctions has been attributed to recent changes in the global energy landscape. At the onset of the conflict in February 2022, energy markets were under considerable strain, raising fears that sanctions against Russian oil exports could lead to soaring prices that would benefit Russia despite reduced sales. However, with increased production capacity from nations such as the U.S., Canada, and Brazil, the Biden administration feels a firmer stance can now be taken without destabilizing the global oil market.
Additionally, the Biden administration may have been motivated by domestic political considerations. Implementing sanctions before the elections could have inflated gasoline prices and adversely affected the Democratic party. Now, the incoming administration under Donald Trump will face the repercussions of these sanctions, as global oil prices for Brent and WTI rose significantly following the announcement.
As Trump prepares to take office, he may find himself in a position to negotiate with Russian President Vladimir Putin without bearing the responsibility for the sanctions imposed by Biden. Trump has consistently highlighted his favorable relationship with Putin, even claiming during his campaign that he could resolve the Ukraine conflict swiftly—though he did not specify how.
There are concerns in Kyiv and other European capitals that Trump might reduce support for Ukraine as leverage in negotiations with Moscow. It is likely that he will revert to his preferred negotiation strategy of displaying initial toughness and threatening further measures to encourage concessions before entering negotiations.
In its final days, the Biden administration is actively laying the groundwork for Trump’s future decisions. It is working on sending significant military aid to Kyiv, utilizing previously approved congressional funding. These new sanctions are part of an ongoing series of measures initiated by the U.S. and its allies, including the European Union, aimed at diminishing Moscow’s revenue and military power since the onset of the war.