The Biden administration’s term is about to end, but in its final days it has taken decisive action against Russian oil, President Vladimir Putin’s main source of income.
On January 10, the White House announced tough sanctions against the Russian oil sector, blacklisting nearly 200 vessels in its so-called shadow fleet and targeting Russian oil producers Gazprom Neft and Surgutneftegas.
Moscow has largely found ways to circumvent the sanction of the oil price cap – which uses various mechanisms to limit the sale of a barrel of Russian oil to $60 (58.2 euros) a barrel – since it was introduced. at the end of 2022. However, analysts are encouraged by new developments.
Craig Kennedy, an independent Russia expert currently at Harvard University’s Davis Center for Russian Studies, believes the new sanction is “a painful blow” for Russia. “It means that some of the ships they thought they could trust will have to be immobilized in ports around the world and will no longer be useful,” he told DW.
Benjamin Hilgenstock of the kyiv School of Economics told DW that the news was a “very positive development” but stressed the need to keep up the pressure. “Coalition countries must continue to sanction ghost tankers until the ghost fleet will go down in history,” he said.
Crude oil prices reached their highest level since August after the news broke. However, the Biden administration’s move would have been motivated by the forecast of excess supply in global oil markets in 2025.
Oil is essential for Russian spending
The initial idea of the price cap was to avoid market disruption by keeping Russian oil on world markets while limiting the price it received for the product. Western insurance and logistics services, which dominate global shipping, would not be provided if Russian oil sold above the $60 cap.
Russia circumvented the limit by purchasing hundreds of old oil tankers and building its so-called shadow fleet. These vessels have been transporting oil to countries that buy in large quantities, such as India and China, often using opaque insurance systems.
Although Russian oil revenues fell sharply in the first six months after the cap was introduced, they have largely recovered in the last 18 months. According to the Center for Research on Energy and Clean Air (CREA), Russian crude oil export revenues increased by 6% in 2024, despite a 2% reduction in exported volumes.
Oil revenues have been critical for President Vladimir Putin, who has dramatically increased military spending in an attempt to gain battlefield advantage against Ukraine. Defense spending has more than tripled since 2021 and is expected to reach a record 13.5 trillion rubles ($131 billion, €128 billion) in next year’s budget, another huge increase from 25 %.
“Oil has become enormously important to Russia now,” Kennedy said. “They are under increasing pressure. With the loss of European gas markets, there has been even greater emphasis on the need to get the most out of oil.” The European Union has sharply reduced the amount of Russian gas it buys since the 2022 invasion.
Less oil, more peace?
While discussions of price cap dynamics or insurance fraud may seem abstract, the bottom line is that the success of sanctions on Russian energy directly impacts Putin’s ability to wage war on his terms.
“It undermines Moscow’s confidence that it will be able to prevent a crisis from suddenly occurring that shatters this illusion that Russia is somehow resilient and able to fight for as long as it needs to,” Kennedy said.
Ukrainian President Volodymyr Zelensky put it succinctly when he reacted to the news of the latest sanctions. “The less revenue Russia gets from oil,” he wrote on Platform X, “the sooner peace will be restored.”
(gg/cp)
