WSJ: Could Trump’s Sanctions on Russian Oil End the War?

Russia says nyet nyet nyet, but their bank accounts may say da, tovarisch. 

Yesterday, Donald Trump and Scott Bessent announced a major escalation in economic sanctions on Russia over the war in Ukraine. This time, the Trump administration took aim at what one economist called Vladimir Putin’s “war ATM,” their oil exports. Previous sanctions on Russian energy may have nibbled at the edges, the Wall Street Journal reports, but the new sanctions take direct aim at their biggest oil producers — and more importantly, their customers.

The move follows Trump’s angry cancellation of a summit with Putin as a “waste of time,” and offers the most dramatic shift away from engagement and toward a maximum-pressure strategy on Russia:

Analysts say the impact of blacklisting Rosneft and Lukoil—Russia’s biggest oil producers—will hinge on three things: how well they are enforced, the reaction of major markets in India and China, and whether Moscow can circumvent the measures.

The new U.S. sanctions “mark the most material move to date by the U.S. to shutter the Russian war ATM,” Helima Croft, head of global commodity strategy for RBC Capital Markets, wrote in a note to clients. “If the Trump administration does indeed back today’s words by action, we anticipate that refiners seeking to retain access to U.S. capital markets will forgo Russian barrels.”

The European Union on Thursday approved new sanctions phasing out purchases of Russian liquefied natural gas and targeting more than 20 Chinese and other foreign firms involved in the Russian oil trade. Trump’s decision to impose the U.S. sanctions came after the Kremlin rejected Washington’s call for a cease-fire along the current front lines, followed by peace talks. The president has previously called for Europe to hit Beijing economically for continuing to support Russia’s economy.

Russia has certainly noticed that Putin accomplished one thing — he reunited the US and EU:

Meanwhile, Russia has responded furiously to the new sanctions. 

“The decisions taken are an act of war against Russia. And now Trump is fully in solidarity with crazy Europe,” said former President Dmitry Medvedev via Telegram on Thursday.

Ahem. Russia has sent drones and war planes into NATO airspace. They sent a submarine into NATO waters in the Baltic Sea. Those are actual acts of war. Perhaps Medvedev should put down the cheap vodka, or his smartphone, or both. 

This dishonesty is part of a pattern, Bessent told Fox Business after announcing the sanctions. Those actions followed genuine attempts to bridge the gaps between Ukraine and Russia to end the war, Bessent claimed, but Putin’s regime refused to deal in good faith. That left the US no choice but to take action:

“President Putin has not come to the table in an honest and forthright manner, as we’d hoped,” Bessent told Fox Business, noting that when the two leaders met in Alaska in August, “President Trump walked away when he realized that things were not moving forward.” He added: “There have been behind-the-scenes talks, but I believe that the president is disappointed at where we are in these talks.”

Will these sanctions force Russia to reconsider? The WSJ’s analysis makes a good case. Previous sanctions had avoided cutting off all paths to energy sales for Russia. The Biden Regency had sanctioned two lesser oil and gas producers — Gazprom Neft and Surgutneftgas — but had consciously avoided Rosneft and Lukoil alone. Now that the US and EU have sanctions on all of Russia’s producers, Putin has little room to maneuver:

For Russia, any decline in its oil exports would directly dent the Kremlin’s war chest, since energy sales account for as much as a third of the country’s budget revenue. The sanctions are also expected to introduce more friction in logistics and payments and shrink profit margins for Russian oil.

The sanctions hit the Russian economy at a precarious time. After defying Western sanctions for over three years, the Russian economy has slowed to a crawl in recent months under the weight of a labor crunch, high interest rates and a costly wartime fiscal squeeze. Moscow has resorted to hiking taxes and tapping into its rainy-day fund to cover its widening budget deficit.

That may be true, but Russia has been playing those cards rather well until now, too. Robust sales to India and China have helped, but adding Rosneft and Lukoil to the sanctions list may mean the end of those distribution channels, at least in legit sales. The EU has also sanctioned an Indian refinery that regularly purchased Rosneft’s output, and the US sanctions include two refineries in China for the same reason. Both the EU and the US are now expected to expand sanctions on ports that have been quietly handling Russian oil and gas distribution, tightening the noose around Russia’s energy industry at a time when Putin desperately needs the income. 

Will this force Russia to the table? Perhaps, but that may be more a question for Russia’s oligarch class than it is for Putin. How much longer will they support a war that has gone on for nearly four years and accomplished nothing? At some point, the economic pressure and Putin’s irrational foreign policy will have some impact on his regime’s ability to control the political environment. Of course, we have been wondering that for almost four years now, after Putin’s incompetence led to the failure to capture Kyiv or much of anything else Russia didn’t already control before the war. Putin has proven himself more resilient than competent. We’ll have to see what changes that equation — if anything.

Editor’s Note: Thanks to President Trump and his administration’s bold leadership, we are respected on the world stage, and our enemies are being put on notice.

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