The U.S. is temporarily easing some sanctions on Russian oil shipments, reflecting global concerns over sharply higher crude prices due to supply shortages stemming from the Iran war.
The move, intended to soothe jittery markets over the disruption of Middle Eastern oil and gas supplies, underlines how the war has boosted Moscow’s ability to profit from its energy exports, a pillar of the Kremlin’s budget as it presses its invasion of Ukraine.
U.S. sanctions will not apply for 30 days on deliveries of Russian oil that’s been loaded on tankers as of Thursday, U.S. Treasury Secretary Scott Bessent said on X. That would give reluctant purchasers a green light to take the oil without worrying that they will run afoul of U.S. sanctions rules.
The Trump administration earlier had granted a 30-day reprieve to refineries in India.
Bessent said the “narrowly tailored, short-term measure” was part of President Donald Trump’s “decisive steps to promote stability in global energy markets” and to “keep prices low.”
Allowing the sale of stranded Russian oil would provide no additional financial benefit for the Russian government because the Kremlin already taxed the oil when it was extracted from the ground, Bessent said. Washington has sanctioned Russia’s two biggest oil companies, Lukoil and Rosneft, as part of efforts to end the fighting in Ukraine. Except for the 30-day reprieve for floating oil, those sanctions remain in place.
Kremlin spokesman Dmitry Peskov said Friday the move will help stabilize global energy markets, adding it was impossible to do so “without significant volumes of Russian oil.”
But Ukrainian President Volodymyr Zelenskyy said the action “does not help peace.”
“This easing alone by the United States could provide Russia with about $10 billion for the war,” Zelenskyy said. “It spends the money from energy sales on weapons, and all of this is then used against us.”
Oil prices stayed high after the announcement
The price of international benchmark Brent crude eased after the announcement but soon rose again, breaking through $100 to trade at $103.24 per barrel as of 1800 GMT (2 p.m. EDT) Friday. That is still well above $72.87, where Brent traded on Feb. 27, the eve of the war.
The fighting has choked off most tanker transport through the Strait of Hormuz at the mouth of the Persian Gulf, through which 20% of the world’s oil supply typically passes. That has dealt a massive energy shock to the global economy and threatened increased inflation around the world.
“In the short term this slightly increases available supply on the global market, which helps contain the current spike in oil prices,” said Simone Tagliapietra, an energy expert at the Bruegel think tank in Brussels. “The impact on prices should therefore be modestly downward, or at least stabilizing.”
Analysts estimate about 125 million barrels of Russian oil are currently being shipped. That equals five or six days’ worth of normal shipments through the Strait of Hormuz, or a bit over one day’s worth of global consumption of about 101 million barrels per day.
Sanctions have cut into Russia’s oil revenues.
After President Vladimir Putin ordered his full-scale invasion of Ukraine in 2022, the European Union — once Moscow’s biggest customer — stopped taking Russian oil, and many Western customers also shunned it.
Instead, the oil flowed to China and India, where it sold for a discount due to efforts by the U.S., the EU and Kyiv’s other allies to impose a price cap on Russian oil that was enforced through shipping and insurance companies.
Over time, Russia was able to dodge the cap by lining up a fleet of used tankers with obscure ownership and insurance based in countries that weren’t observing the cap.
Along with the sanctions on Lukoil and Rosneft, Ukraine’s allies penalized more and more of the individual vessels in Russia’s “shadow fleet.” Customers in China and India started demanding even bigger discounts to compensate for the risk of running afoul of sanctions, for the hassle of concealing the origin of the oil, or for finding workarounds that skirted banks reluctant to handle payments for sanctioned oil.
In December, Russia’s Urals blend traded under $40 per barrel, some $25 below Brent. That slashed the Kremlin’s oil revenues to their lowest levels since the invasion. Oil and gas exports typically supply 20% to 30% of the federal budget.
Rising oil prices boost Russia’s market position
Russian oil has risen along with oil prices generally and now trades at over $80 per barrel — a boost to its financial fortunes if disruptions continue in the Strait of Hormuz and keep prices high while refineries in Asia need to replace supplies no longer available from the Middle East.
Russia’s daily revenue from oil sales during the Iran war has been on average 14% higher than in February, according to the nonprofit Centre for Research on Energy and Clean Air. Russia has been earning 510 million euros ($588 million) every day this month from oil and liquefied natural gas exports, according to Isaac Levi of the CREA.
But there’s still a big discount to Brent due to sanctions. The latest U.S. move “likely narrows the Urals discount somewhat” by reducing sanctions risk, Tagliapietra said. But since it’s limited, the U.S. move “does not fundamentally change the structure of longer-term Russian oil flows or sanctions pressure.”
Former Russian Central Bank official Sergei Aleksashenko said the move “will not be a very significant boost” to the Russian budget because the oil was going to find buyers anyway — especially given the disruptions to the Strait of Hormuz.
The Trump administration may not have been ready for such a dramatic spike or for a prolonged war, said Aleksashenko, head of economics at the NEST Centre, founded by exiled Russian tycoon and opposition figure Mikhail Khodorkovsky.
Now that gasoline prices in the U.S. have risen along with oil, “the president should say something, that ‘I’m dealing with the problem,'” he said. That includes the break for India and the release along with other countries of 400 million barrels of strategic oil reserves.
“In my view it’s more rhetoric and perception,” he said.
German Chancellor Friedrich Merz said leaders of the Group of Seven democracies discussed Russian oil with Trump this week and that “six members expressed a very clear view that this is not the right signal to send.”
