US administration sanctions Russian oil majors
The US administration’s 22 October 2025 decision to add Rosneft, Lukoil, and their subsidiaries to the Department of the Treasury’s Office of Foreign Assets Control (OFAC) Specially Designated Nationals (SDN) List prohibits US entities from doing business with these Russian oil companies. More importantly, it sends a clear signal to Rosneft and Lukoil’s global counterparts that the risk of secondary sanctions is more plausible than before. These entities include refineries, insurance and logistics companies, traders, and financial institutions that are purchasing Russian oil.
A view of the oil terminal in Saint Petersburg on 26 September 2025, Image credit: Olga Maltseva/AFP via Getty Images
Given that Rosneft and Lukoil constitute around half of Russia’s daily oil production, the sanctions on Russia’s oil majors are likely to have a considerable impact on government revenue. This is likely the rationale behind not adding Rosneft and Lukoil to the SDN List earlier, hoping that the combination of sanctions across various industries would have enough effect on Russian revenue to pressure Russia to a ceasefire agreement in Ukraine. US sanctions also aimed to accommodate the domestic interests of some European allies – particularly Bulgaria, Hungary, and Slovakia – that depend heavily on Russian oil, and to preserve trade relationships with Asian partners, particularly India.
The recent sanctions follow the logic of measures taken earlier by both the Donald Trump and Joe Biden administrations, as well as the European Union (EU), to erode Moscow’s oil revenue and soften Russian demands in Ukraine. Among the actions pursued in the past were voluntary reductions in purchases, the introduction of a price cap through the G7, targeting the shadow oil fleet, and imposing tariffs on India’s exports to the United States as a pressure tactic to force India to abandon Russian oil imports. Looking retrospectively, a diverse set of tools was deployed, but the impact on Moscow’s war calculus was limited.
Now, the US administration has deployed one of the most severe financial sanctions on two companies that export more than half of Russia’s crude oil. Initially, the announcement gained momentum, and news reports indicate that almost all Rosneft and Lukoil’s global partners are assessing the risk of continued engagement ahead of the 21 November 2025 deadline when the sanctions will come into force.
Sanctions efficacy depends on reaction of global trade partners
The first and most crucial factor in determining the impact of the new sanctions package is the position of the principal countries that buy Russian oil, including China, India, Türkiye, and some smaller Eastern European countries. The official positions of Russia’s partner countries matter, as do the strict enforcement of sanctions and the US treasury’s willingness to impose secondary sanctions. The overall effectiveness will depend on a mix of external factors: the positions of key state partners, Russia’s ability to manoeuvre in the new environment, and the side effects of sanctions. None of these should be underestimated. The first effects on Moscow’s budget are likely to be seen within three to six months.
Initially, as Reuters reported, four Chinese state-owned oil companies – PetroChina, China Petroleum & Chemical Corporation (Sinopec), China National Offshore Oil Corporation (CNOOC), and Zhenhua Oil – suspended purchases of Russian oil and are reassessing the situation. Still, a crucial element will be Beijing’s official position, which remains unclear. The Chinese Ministry of Foreign Affairs (MFA) condemned European sanctions from the 19th package, introduced at the same time as the US SDN designations in October 2025, which targeted private refineries that import Russian oil: Liaoyang Petrochemical, Shandong Yulong Petrochemical, and the trade arm of PetroChina, Chinaoil Hong Kong. China’s MFA characterised them as illicit and condemned US treasury sanctions as unilateral and lacking any basis in international law. This has been Beijing’s long-standing position, indicating that China will likely continue purchasing discounted oil from Russia, possibly through alternative routes involving smaller refineries and traders, while protecting its champion oil companies. Another outcome is less likely, but not entirely excluded, as Washington and Beijing are in the process of realigning their trade relationship and may eventually take a closer position on how to influence Moscow.
New Delhi’s position is even more ambiguous due to the lack of official government guidance, despite reports indicating that India is poised to reduce its purchases of Russian oil. If confirmed, this could affect not only state refineries but also private ones such as Reliance Industries Limited (RIL) and Nayara Energy, where Rosneft is a significant shareholder. These companies account for 16% of India’s total Russian oil imports and have a distribution network in the country. In a scenario where only state-owned refineries are banned from purchasing, and private ones are allowed to continue doing business independently, Moscow would gain some space and time.
The Republic of Türkiye is also expected to continue purchasing Russian oil. Before the sanctions’ announcement, Turkish Energy Minister & Alparslan Bayraktar stated that purchasing Russian oil is a commercial decision for companies, which may exempt them from an outright ban.
Russian ability to evade sanctions to determine impact
For Russia, sanctions are barriers to be circumvented, and the country’s ability to bypass them should not be underestimated. Past methods include changing traders and insurers, operating a shadow fleet, developing alternative settlement schemes, and seeking buyers beyond traditional partners. While the space for manoeuvring is limited, it is not entirely closed. Recent reports indicate that Russia supplied a small amount of oil to the newly opened Kulevi refinery in Georgia and sent refined products to Syria. The best example of sanctions adaptability is Gazprom Neft and Surgutneftegaz, both of which were sanctioned at the beginning of 2025 and are still operating. The sanctioned companies rerouted exports, established parallel trade networks, and have offered discounted prices to attract new customers.
Sanctions’ side effects unpredictable
Additional factors that will determine the sanctions’ success are the yet-to-be-seen side effects, particularly regarding the fate of Russian companies’ overseas operations and the movement of global oil prices. These are significant elements of the puzzle, likely considered before the sanctions were announced. However, as seen before, Moscow may try to exploit these effects to its advantage. If global producers do not increase production to meet the rising demand caused by a decline in Russian oil, Russia could still profit by selling small volumes at higher prices. Such a scenario would undermine the goal of decreasing Russian budget revenue and slowing the country’s ability to fund its war industry.
In this context, it is plausible that Russia may attempt to co-ordinate diplomatic and other efforts to limit supply from the Central Asian countries and Iran. Moscow has leverage over Kazakhstan’s flow through the Caspian Pipeline Consortium (CPC) pipeline, which passes through Russian territory and accounts for 1% of global supply. Disruption would directly affect the state budget but could distort the oil market. Also not to be ruled out is some co-ordination between Russia and Iran as the sanctions define Russia’s global oil position to be more like that of Iran, where Moscow is transforming from an international oil supplier to a country running a fully sanctioned oil sector.
Further afield, efforts to undermine Azeri exports should not be entirely ruled out, especially as Russia faces the potential loss of the European market and may be less concerned about the repercussions if it gets involved in grey-area activities to sabotage Baku’s exports, which are less than 1% globally but are essential for Europe, particularly.
Another potential side effect that could undermine the sanctions’ goals is a scenario in which Russia profits from the sale of Russian companies’ upstream and downstream global assets. Lukoil owns refineries in Bulgaria and Romania, as well as significant upstream operations in Egypt, Ghana, Iraq, and Nigeria. In the short term, proceeds from divestment could help Russia navigate the challenges posed by the latest sanctions.
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If fully enforced, OFAC sanctions represent a significant threat to Russia’s oil sector, which – alongside natural gas exports – accounts for 30–50% of the national budget and supports the military-industrial complex. The impact is expected within three to six months. However, evolving evasion strategies – such as complex financial and shipping networks, discounted pricing, and continued purchases by countries such as China, India, and Türkiye – may weaken the sanctions’ effectiveness. Should Russian crude exports be effectively curtailed, Russia may resort to grey-zone tactics to disrupt global supply, elevate prices, and pressure economies. These could include diplomatic manoeuvres, route interference, or sabotage. In addition, the withdrawal of Russian firms from international projects could destabilise markets. Lukoil, in particular, operates key refining and extraction assets abroad. For example, its refinery in Bulgaria – critical to the Balkan region – illustrates the potential for regional economic disruption. |