American sanctions are putting Russia under pressure

On December 1st Gunvor, a big oil trader, announced that its co-founder and boss, Torbjorn Tornqvist, would leave and sell his stake in the firm to staff. The Swede is a collateral victim of American sanctions against Lukoil and Rosneft, Russia’s biggest oil firms, that were implemented on November 21st. Swiss-based Gunvor had offered to buy Lukoil’s $22bn portfolio of foreign plants, stations and wells, reviving suspicions it was cosy with the Kremlin. America blocked the sale, forcing it into a humiliating u-turn. Now Lukoil’s assets look like they may be sold in chunks, for rather less money.

Such write-downs will irritate Lukoil and Rosneft, two big contributors to Russia’s state budget. As peace talks falter, Ukraine and its allies are hoping that the pain does not stop there. On paper, America’s sanctions are the most potent imposed on Russia since 2022. They threaten to cut off from American finance anyone, even foreigners, who facilitates sales by the two giants, which together account for half of Russia’s crude exports. The aim is to deter buyers in China and India, the main purchasers of these barrels. For now, they are putting Russia under pressure.

Last month arrivals of Russian crude into India rose by a fifth compared with the previous month, as buyers rushed to stock up ahead of sanctions. Unusually, India’s state-owned firms made 65% of the purchases, suggesting they were being pushed to cease shipments thereafter. Now they have indeed cut back. Many private refiners have said they will buy only from entities not under sanctions; a few have stopped importing Russian oil altogether. Together with more modest reductions in purchases from China and Turkey, that could cut Russia’s shipments of crude by 1.4m barrels a day (b/d) in the next few months, a 39% drop from October’s rate, says Sumit Ritolia of Kpler, a data firm.

Shippers are becoming wary, too. Greek vessels, which used to carry much of Russia’s flagship “Urals” grade oil to India, are shunning the trade, says Anna Zhminko of Vortexa, a ship-tracker. Only a third of the “shadow” tankers that loaded the stuff between August and October did so in November. Those still making the journey take longer routes or transfer the load midway to another ship, buoying costs. Urals’ discount to Brent, the global benchmark, has roughly doubled since mid-October, to nearly $20. Tricky logistics and dwindling deliveries have pushed the volume of Russian oil floating at sea to 120m barrels, or 30 days’ worth of exports (see chart).

Russian firms are starting to find workarounds. Rather than shipping directly to India, Lukoil and Rosneft have begun to sell more barrels to third parties that America has not targeted—such as Tatneft, a smaller oil firm, or little-known traders, including MorExport and RusExport, active only since May—which then flog the oil to the subcontinent. This makes blacklisted imports deniable, while allowing Indian refiners to reap the discounts on offer.

Even as they do, however, two forces will weigh on the Kremlin. One is Ukraine’s drone strikes against Russia’s oil infrastructure, which are getting smarter. Instead of sporadic attacks, Ukraine now bombs the same refiners every two to three weeks, causing repeated shutdowns and slowing the rate of repair. And instead of attacking refineries at the point where crude enters them, it is targeting the secondary units that produce the final fuel. These are trickier to fix, because they require sophisticated components from the West. Increasingly Ukraine is also blowing up Russia’s fuel depots and loading terminals. In the past week it has attacked at least two shadow-fleet tankers.

Ukraine’s onslaught could cut Russia’s refinery throughput by 7-10%, analysts estimate. This would force Russia to export more crude into an already saturated market. As countries outside the Gulf pump more, global oil supply is expected to grow more than three times faster than demand next year. Failing output cuts—notably by the Organisation of the Petroleum Exporting Countries and its allies, which include Russia—prices could fall to below $50 a barrel (they averaged $80 in 2024).

Low exports, at cheap prices, will be a concern for Russia’s leaders. “They are uncomfortable,” says Sergey Vakulenko, a former executive at a Russian oil firm. “They see it as a problem, and they know they can’t do much.” President Donald Trump therefore has an opportunity. It is well known that Ukraine, short on funds, men and weapons, holds a weak hand in negotiations. So, for now, does Russia. ■