U.S. sanctions on Russian oil are more about optics than outcome

With OPEC’s spare capacity and Russia’s workarounds, the U.S. sanctions may score headlines but won’t shift the global oil equation

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The U.S. has sanctioned Russia’s top two oil producers in a bid to end the war in Ukraine. But with markets skeptical and U.S. President Donald Trump’s stance shifting by the week, the move may be more about optics than outcome.

The sanctions, announced last Wednesday, target Rosneft and Lukoil, Russia’s two largest oil producers and major sources of funding for the Kremlin. The move is a dramatic attempt by Trump to pressure Russian President Vladimir Putin into agreeing to a ceasefire.

The announcement pushed crude oil prices up by about US$5 a barrel on Friday. Some believe the bump will be temporary, and markets, for now, remain unconvinced.

The U.S. Treasury followed up by warning that foreign financial institutions dealing with the two sanctioned firms could be frozen out of the global financial system—a serious threat for companies that rely on U.S. dollars to trade oil.

In the short term, the sanctions are expected to slow the flow of Russian crude into global markets and squeeze Moscow’s war chest. Indian buyers are already seeking alternative supplies from the Middle East, and large Chinese refiners are also looking elsewhere.

On Thursday, Putin acknowledged the new sanctions were “serious,” according to the Moscow Times. “They will have certain consequences, but they will not significantly impact our economic well-being,” he told reporters.

The pain, however, may be real. Rosneft and Lukoil account for about two-thirds of the 4.4 million barrels of crude Russia exports daily. The measures prevent the two companies from trading in U.S. dollars—the dominant currency for international crude transactions.

That could eliminate up to half of their export capacity, said David Fyfe, chief economist at the Argus media consultancy. For Lukoil in particular, the sanctions “will hurt significantly,” said a former company executive, who spoke anonymously. The firm may be forced to sell stakes in overseas projects from Egypt to Iraq, potentially slashing 20 per cent of its revenue.

Trump’s posture on Ukraine has been anything but consistent: aligning with Ukrainian President Volodymyr Zelenskyy one day, then criticizing him the next. That erratic approach suggests the sanctions are tactical, not permanent, and likely to be reversed if Putin signals even limited flexibility or if gas prices at home begin to climb.

Trump also acted while oil markets are relatively flush with supply. With domestic gas prices always a political flashpoint, the White House cannot afford a prolonged price spike. That’s why many analysts believe the sanctions are designed as short-term leverage.

OPEC is already unwinding production cuts and has spare capacity. If the market tightens, Trump could pressure them to boost output and cool prices.

“I’m sure that Russia will keep selling, but this time it will be harder,” said Tatiana Mitrova, a Russian oil industry veteran now at Columbia University’s Center on Global Energy Policy.

Russian officials admit the sanctions could strain the state budget, which depends on oil revenue to fund the war in Ukraine. But if Iran can keep energy exports flowing under heavy sanctions, Moscow probably can too, Carol Ryan wrote in the Wall Street Journal. Supply to top customers like China and India may be disrupted, but long-term oil price effects could be modest.

What does this mean for Canada? The recent oil price bump isn’t driven by supply and demand: it’s geopolitics. That may briefly benefit Canadian producers, particularly in Alberta, where oil and gas exports remain a major driver of provincial and national revenue. Petrodollars may flow in the short run, but so will uncertainty.

Toronto-based Rashid Husain Syed is a highly regarded analyst specializing in energy and politics, particularly in the Middle East. In addition to his contributions to local and international newspapers, Rashid frequently lends his expertise as a speaker at global conferences. Organizations such as the Department of Energy in Washington and the International Energy Agency in Paris have sought his insights on global energy matters.