The sanctions that Trump has imposed on the two Russian oil giants, Rosneft and Lukoil, are causing much discussion.
And, as usual, the comments making the most noise are the most radical ones.

‘Coup de grace’ or ‘needless suicide’?

On the one hand there are Putin’s Western admirers, according to whom sanctions are suicidal, are like ‘shooting oneself in the foot’ (if not in even more delicate parts) and will do nothing more than wipe out any Western role in a trade that Russia, China and India are capable of pursuing on their own.

Sanctions would be useless and would confirm once again that we live now ‘in the new multi-polar world’, ‘in the era of the BRICS’ or ‘in the century of Asia’: a statement that causes ill-concealed itches of pleasure to Putin’s Western admirers (while it causes annoyance to Russian citizens, as a Levada centre survey has shown and Ukrainian intelligence services have confirmed).

Trump’s admirers, on the other hand, describe the move as a ‘game changer’: a final blow against the Russian oil industry, as if not even a drop of “black gold” should reach Moscow or New Delhi overnight.

The right perspective

It is clear that both reactions are exaggerated.

To disprove the enthusiasts, one only has to look at the response of the markets: the Brent price of oil has risen, but by less than 8% (from $61 to $66 per barrel), which would not have happened if traders had foreseen the sudden disappearance from the market of the 5 million barrels per day that Russia currently exports.
Even Rosneft and Lukoil share prices, despite a slight drop, remain far from the low they had reached at the time of Covid pandemic.

To disprove the defeatists, on the contrary, one need only look at the response of Putin himself and the Chinese.
The former, while premising that the Trumpian sanctions ‘will not worsen our standard of living’ (which for tens of millions of Russians is indeed difficult to make even worse), called them ‘an unfriendly act’ that ‘will cause us some losses’.

The latter, on the other hand, complained about the ‘unilateral sanctions not agreed with the UN’, blamed the hypocrisy of the USA and the EU who ‘continue to trade with Russia while asking us not to do it’, swore that they ‘have not supplied any lethal weapon systems to the two sides in the conflict’. Such statements are logically fallacious, but very clear in signalling that some concrete disadvantage will also come to Beijing.

What are sanctions really for

In order to make a credible estimate of what the effect of the new sanctions will be, one must first remember how the old ones have worked so far.

From 2023 until today, the EU, the US and the UK have gradually blacklisted Russian companies that produce and export oil. If a third company does business with one of those on the list, in a nutshell, it is precluded from doing business with European, US, and British companies.

For example, to explore and drill new fields , Russian corporations can no longer buy equipment directly from Western companies: they have to try to procure them through fortunate triangulations by paying a premium. In fact, exploration activities on Russian soil have come to a standstill.

Even the regular maintenance of refineries and pipelines, not to mention the repair of equipment hit by Ukrainian drones, would require Western technological components. Procuring them by triangulation is much more time and costly.
As a matter of fact, today Russia is no longer able to refine enough oil even for its fuel needs: at the moment there are 68 out of 83 states in the Federation with petrol or diesel shortages, and even from importing countries such as Mongolia and Kyrgyzstan the first videos with queues and dry pumps are arriving.

Ghost ships, horror prices

Last but not least, the export of crude oil. Since the West dominates the insurance market, moving crude oil from Siberia to buyer countries (such as India, China or Turkey) requires the use of uninsured ‘ghost ships’ in many cases.
The buyer, when he decides to take this risk, demands a quid pro quo from Russia: a substantial discount on crude oil, which in the last two years has amounted to around 14 dollars per barrel.

Until 21 October, when Trump had not yet announced the new sanctions, Russian oil was thus bought by Indians, Chinese and Turks at $47 per barrel.
But the costs for Russian companies to extract and ship it, due to our ‘useless sanctions’, had risen to $44 per barrel. The profit margin, as you can see, was very narrow.

Less oil, more taxes and debt

No wonder the Kremlin expected to collect just EUR 85 billion from oil and gas taxes this year, compared to EUR 110 billion last year and EUR 100 billion two years ago.

But just to occupy Ukraine the Kremlin is going to waste 160 billion this year.
Revenues from oil and gas would then have financed little more than half of the military expenditure: the rest, inevitably, was to be covered by tax increases and wild borrowing.

However, the tax increases are hitting a country where all industries except the military are running at a loss. If you subtract the military from the 0.8% year-on-year growth in industrial production, the rest of industry is in full recession.
How much more tax can be squeezed out of an impoverishing population?

As for borrowing, again because of the ‘useless sanctions that are like shooting oneself in the foot’, Putin cannot negotiate it with foreign lenders: he has therefore forced Russian banks to lend money to the state, rapidly draining their liquid reserves (19 billion euro against a debt of over 60).

Trump’s push

In this already fragile context, we can at this point try to estimate the impact Trump’s move will have.

• A shock of a few months. The main news is that Rosneft and Lukoil will no longer be able to exchange their oil in dollars, and an alternative system to exchange it in yuan or rupees cannot be improvised overnight.
  
  It may be, therefore, that India and China will reduce the volumes of oil purchased in Moscow for a few months, compressing its 2025 revenue to even less than the 85 billion that had been budgeted. All this on the eve of December, when the Russian state has to make its worst disbursement of the year.
  
  
• Spreading salt where Ukrainian drones pass. Rosneft and Lukoil actually manage only 30% of Russian oil extraction and 35% of its refining. But the facilities they own are precisely those in European Russia that have been under continuous attack by Kiev’s drones since August.
  Trump’s enhanced sanctions might convince Putin that those refineries are now beyond repair or in any case not reactivatable at full capacity.
  
  This would be good news, because Russia’s oil system is geographically rigid: it is those refineries that feed the regions bordering Ukraine and the occupation forces inside Ukraine.
  
  
• India’s realignment. If India alone were to stop buying the 1.6 million barrels per day it currently buys from Russia, it would open a black hole in Putin’s budget, even without bothering China.
  
  In any case, a Kuwaiti minister announced that the Gulf countries are ready to replace all Russian oil that would leave the market: their additional capacity is estimated at between 3 and 4 million barrels per day. New Delhi would be compensated for the ‘damage’ by a reduction of US duties on its goods (15% instead of 50% is mentioned).
  
  

The ‘new world’ does not suit Putin

This, perhaps, is the most important thing to keep in mind in the long run: contrary to what we have been told for three years, Russian oil is not irreplaceable.

In the ‘new multipolar world’ and the ‘century of Asia’, it has become virtually possible to cope without Russian oil, just as it has become virtually possible to do without Chinese chips (which the Nexperia affair is proving).

The same triangulations and restructuring of the supply chain that Russia and China have profited from can be implemented by countries that want to disconnect from Russia and China.
The Russian dictator did not find himself isolated because of changes in world politics, which indeed became increasingly sympathetic to his ideas, but because of changes in the world economy .

And if, God willing, he will be defeated in Ukraine, he will be defeated because of it.