Trump goes there Lukoil and Rosneft account for half of Russia’s oil exports. Now both are under U.S. sanctions.

The U.S. and the European Union have jointly imposed sanctions targeting Russia’s two largest oil companies — the first such move since Donald Trump returned to the White House. On Wednesday, the U.S. president changed tack from previous days and opted to take a harder line with Moscow, canceling a planned meeting with Vladimir Putin in Budapest and approving sanctions Washington had long threatened to enact.

The new restrictions on Lukoil and Rosneft, Russia’s largest oil exporters, apply not only to the parent companies but also to 34 of their subsidiaries. U.S. secondary sanctions now threaten any trading partners doing business with these entities, unless they wind down operations within a month. This secondary sanctions threat may pose an even greater risk to Russia than the blacklisting of the companies themselves.

U.S. Treasury Secretary Scott Bessent urged America’s partners to join in the sanctions to increase their effectiveness, and the E.U. responded swiftly. Within hours of the U.S. announcement, Lukoil and Rosneft were included in Brussels’s 19th sanctions package against Russia. The E.U. promised to tighten restrictions on the state-owned Rosneft, while Lukoil was blacklisted along with its Dubai-based trading arm, Litasco Middle East DMCC, which European officials say manages many of the tankers in the “shadow fleet” of ships illegally transporting sanctioned Russian oil. 

That’s true. But it’s also true that relations between Russia and the West are at a new turning point. For almost a year, Trump held off on imposing new sanctions against Russia, hoping to convince Putin to agree to a peace deal with Ukraine or at least to a temporary ceasefire along the front line. For a moment, it seemed that the two leaders’ recent phone conversation and plans to meet in Hungary were signs that the U.S. president’s peace efforts would continue. Instead, Trump abruptly changed course and took actions that Kyiv and its European partners had long advocated for.

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The U.S. sanctions against Lukoil and Rosneft are a major decision that could have potentially far-reaching effects on the global oil market. It’s telling that even Joe Biden’s administration, which was less inclined toward contact with the Kremlin, hadn’t dared to impose such measures. The announcement itself sent immediate ripples through the markets: Brent crude prices jumped nearly four percent, to $65 a barrel. As The Bell pointed out, Lukoil and Rosneft account for nearly half of Russia’s raw material exports. Sanctions against them create a domino effect that primarily threatens major buyers — namely China and India.

Judging by initial reactions, they do. The U.S. sanctions are “sending shockwaves deep into the heart of China’s oil industry,” Bloomberg reported on Thursday, citing its industry sources. Russia currently supplies up to 20 percent of China’s crude oil imports, of which Lukoil and Rosneft account for about a quarter. Many state-owned and private enterprises rely on processing this crude, and they are integrated into the global financial system.

The risk of secondary sanctions means these companies could be cut off from Western banking services, lose access to the dollar, and see their dealings with American and European traders, shippers, and insurers frozen. According to Bloomberg’s sources, Chinese companies’ involvement in projects in the Middle East and Africa depend heavily on such service providers.

At least in some cases, Beijing will likely have to weigh the benefits of cheap Russian oil against maintaining its stake in joint ventures with the West. For instance, refineries in the northern city of Daqing depend on Russian crude — specifically ESPO-grade oil delivered via pipeline under a long-term agreement between Rosneft and the state-owned China National Petroleum Corporation. That said, the intergovernmental nature of the project might offer some protection for these supplies, which total around 800,000 barrels per day.

That’s certainly possible. Experts don’t rule out that these new sanctions could become another “paper tiger,” as Trump likes to say, with little real impact on Russian exports. Moscow has already proven its ability to sidestep restrictions by building alternative financial networks and shipping crude via its “shadow fleet.”

What Russia hasn’t faced before, however, is the Trump administration acting as the chief enforcer of sanctions. If the White House remains serious about monitoring the effectiveness of its measures, Russia’s oil revenues could take a hit. “The key [question] will be if there’s a threat of secondary sanctions on banks, oil refineries, and traders in third countries who are dealing with Rosneft and Lukoil,” explained Eddie Fishman, a senior fellow at the Atlantic Council, to CNN.

Besides the “stick,” the U.S. will likely also wield a “carrot,” trying to persuade Russia’s main buyers to cut their oil purchases. Trump has already said he plans to raise this issue during his meeting with Chinese President Xi Jinping in South Korea at the end of October. It’s hardly out of the question that Russian oil could become a bargaining chip in the broader trade talks between the world’s two largest economies. For Beijing, lowering U.S. tariffs might prove a more attractive incentive than continuing to buy Russian crude — at least at the volumes seen today.

India has plans to make concessions — and this could pose an even bigger challenge for Russia. Just over a week ago, Donald Trump publicly claimed that Indian Prime Minister Narendra Modi had promised to cut back on oil purchases from Russia. While there’s been no official confirmation from New Delhi, the U.S. president’s remarks caused an uproar in India’s refining sector.

According to sources cited by Reuters, local refineries are already cutting purchases from Russian suppliers by 50 percent. And sanctions against Lukoil and Rosneft could push that figure all the way down to zero, or so Bloomberg’s contacts in India are saying. This is despite the fact that Russia still accounts for more than a third of India’s total oil imports.

It doesn’t look like it, Sergey Vakulenko, a senior fellow at the Carnegie Russia Eurasia Center in Berlin, recently told Meduza.

For this reason, the assumption that U.S. sanctions will completely remove Russian crude from the market is unlikely to hold. Otherwise the world risks a price shock — something the U.S. itself is unlikely to want.

A more realistic outcome is a shrinking of Russia’s market share and a drop in its oil and gas revenues. Those revenues make up roughly a quarter of the federal budget — and given the authorities’ existing problems filling the treasury, any new effective sanctions could hit the economy hard.

Trump said he hopes the sanctions against Lukoil and Rosneft will not have to remain in place long and that Russia will soon reach an agreement with Ukraine to freeze the hot phase of the war. But so far, Moscow has rejected talk of a ceasefire. Dmitry Medvedev, deputy secretary of Russia’s Security Council, offered a more hawkish response to the sanctions: “There is a clear upside to this latest swing of the Trump pendulum: [now] we can pound every Banderite hideout with all manner of weapons without worrying about unnecessary negotiations.”