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The US administration has placed full sanctions on Russia’s Rosneft and Lukoil, and threatened secondary sanctions on companies that service them. These companies handle about 50% of all Russia oil production and exports. We look at the likely impact of these moves.
Freezing of all Rosneft and Lukoil assets in the United States
Neither have significant assets in the US, while Russian trade with the United States is minimal at just US$5 billion in 2024.
Secondary sanctions on foreign companies buying Rosneft/Lukoil products
Oil exports account for about 10% of Russian GDP, with these companies responsible for half of that. Assuming secondary sanctions work, this would represent a loss of revenue to Russia of about US$109 billion per annum, or US$9 billion per month. That amount is roughly equivalent to Russia’s annual military budget, which would appear to be why the West has been calling for sanctions of Russian oil in particular.
Will the sanctions work?
The US-based sanctions impact on Rosneft/Lukoil aspect is minimal, while the secondary sanctions impact can cause a greater impact, if these can be enforced. The US has threatened to impose these on all companies that deal with Rosneft/Lukoil, including banks and third party traders such as Turkiye. To be effective, the US will need to impose direct sanctions on these other foreign businesses, which would likely open up trade frictions with China, India, and Turkiye in particular. To cause the maximum damage to Russia, full sanctions will need to be enforced along all parts of Rosneft/Lukoil’s client base and this will be hard to accomplish.
In addition, Russia could also domestically divert Rosneft/Lukoil products to other, non-sanctioned exporters – those responsible for the other 50% of Russian oil exports. This means there are significant holes in the Russian oil sanctions net and its real capabilities.
What would the global impact be?
Global markets today are very jittery and are worried about the effects of secondary sanctions – if these are implemented. Winter is also on the horizon, when oil use for heating reaches peak demand. An immediate rise in oil prices is likely to occur, rendering the EU’s attempted priced cap ineffective. Until any secondary sanctions are issued, Russia is likely to earn more, not less, from its oil exports.
If secondary sanctions are implemented, then oil prices will rise still further, meaning there will be a balancing out of Russian oil exports declining and oil revenues rising, meaning an economic parity would take at least a partial effect: Russia would export less, but earn more. It would take an enormous secondary sanctions effort to break that cycle and really damage the Russian economy.
What are the potential negative consequences?
China, India and Turkiye all sell refined Russian oil products to the European markets; prices would increase for European consumers. With little time to arrange alternative supplies – such as from the United States, there could be energy shortages in Europe.
There is also the high risk of retaliatory sanctions. The United States buys about 20% of its raw uranium directly from Russia, and another 30% from markets (such as Niger) with strong Russian support. There could be impacts on US nuclear energy capacity.
Neither China, India or Turkiye are likely to passively accept US secondary sanctions either. It is hard to say what retaliatory measures these countries could take against the United States, but all have been resistant thus far and collectively account for about 10% of all US global trade, worth about US$290 billion. In other words, if a trade war breaks out between the United States and Russia’s oil buyers, the risk exposure to the US is three times greater than the impact on the Russian economy.
Prognosis
We view that the measures taken against Rosneft and Lukoil will have little effect on the Russian economy but certainly have the potential to further damage the European economies, both with an immediate energy price rise impact and the potential for further increases should oil prices continue to rise. Whether that impact also affects the United States economy depends not upon Russia, but if the US follows through and imposes secondary sanctions on Russia’s clients. If that happens, a global energy war, can be expected to break out with significant impacts going into early 2026.
Further Reading
New US Sanctions On Russian Oil Exports – The China & India Implications
