This text is an automatic translation from Русский. It was generated by AI and may contain inaccuracies.
Read original →How sanctions against Lukoil and Rosneft are reshaping the oil market: why the US isn't blocking supplies but reducing Russia's profitability. Analysis of the impact on prices, the role of India and China, and consequences for Russia's budget.
Washington didn't ban the oil itself—just the companies and infrastructure through which it flows. The sanctions targeted Lukoil and Rosneft, Russia's two largest oil groups, which together account for about five percent of global production.
But unlike the early months of 2022, when any news about Russian oil sparked panic, the market's October reaction was restrained: Brent prices jumped nearly 5% and stabilized around $66 per barrel. By comparison, when the threat of losing Russian oil exports emerged in March 2022, Brent peaked above $130 per barrel.
The main reason for the calm? The market has long learned to live with sanctions. Dozens of workaround schemes exist: a "shadow fleet" of tankers without Western insurance, settlements in yuan and dirhams, chains of intermediaries from Dubai to Shanghai. No one believes Russian barrels will disappear. But everyone understands: now each one costs more to move.
The paradox of recent years is that Western sanctions against Russian oil increasingly resemble not a ban but a "friction tax" instrument. The flow doesn't stop, but with each new sanctions wave it loses speed and margin. Russian suppliers are forced to compete for customers through price dumping. Russia ranks in the top three global suppliers; in August, daily oil supply volumes, according to the IEA, reached 7.3 million barrels, or 10% of the market.
Meanwhile, 60% of all Russian "black gold" exports come precisely from Lukoil and Rosneft. On a global scale, these two largest companies account for about 5% of total world crude oil production—around 5.3 million barrels per day (b/d)—of which they export about 3.5 million barrels per day.
This is where transaction costs emerge: every barrel requires a steeper discount, a longer route, riskier insurance. This is Washington's hidden calculation: not to knock Russia out of the oil market, but to make its participation maximally unprofitable. Lower prices for Russian oil mean lower exchange quotations—and cheap oil is one of Trump's key promises.
In geopolitical terms, this is a compromise between "hitting the budget" and "not exploding prices." The global economy still depends on Russian oil. Even in October, after all the restrictions, it covers up to 10% of global demand. For the US, what matters is that the barrels keep flowing—and get cheaper.
India has become a symbol of the "price reduction through sanctions" strategy—the largest buyer of Russian oil after China. Its oil giant Reliance, which operates a complex with 1.24 million barrels per day capacity in Jamnagar, has already warned it will strictly comply with Western sanctions. This means: some Russian oil purchases may halt, while the remainder will flow through longer chains.
But even this doesn't look catastrophic. According to Kpler analysts, shipments through India's Sikka port in October declined only moderately—from 766 to 591 thousand barrels per day. Russian oil hasn't disappeared; it's simply become more expensive to deliver and riskier for refiners.
And while India tries to balance between its own interest in cheap Russian oil and the risks of falling out of favor with the US, China occupies a strong position and is also reaping benefits from Western sanctions against Russia.
China is effectively insuring Moscow against harsh consequences. Its state and private refineries continue purchases, exploiting the situation: each new sanctions wave gives them leverage to demand bigger discounts.
In the end, Beijing gets cheap oil and political flexibility. Moscow gets revenue, albeit with losses on logistics and intermediaries. And the West gets the illusion of control over the process: the flow hasn't stopped, but Russia's revenues are being cut in percentage terms.
The financial impact for Russia consists of three components: the discount to Brent (by various estimates, from $10 to $15 per barrel), rising transport costs, and longer cash turnover due to settlements outside the dollar. In total, this can "eat up" up to a third of potential export revenue. According to the IEA, even before the sanctions in August, due to falling exports, oil and gas revenues contracted by 6% to $13.51 billion.
For Russia's budget, the oil and gas sector remains a vital source of revenue and reserve replenishment, reserves that have been depleted in recent years: the liquid portion of the National Wealth Fund has shrunk to 4.2 trillion rubles, or 1.9% of GDP. And while oil and gas revenues are declining, they're not critically so—as long as demand persists. Russia has managed to restructure routes and build a supply chain to Asia, albeit with losses. However, room for maneuver is narrowing: each new sanctions package makes the system less resilient and more costly.
If Washington goes further—for example, imposing secondary sanctions against Asian traders and shipping companies—this could actually hit physical volumes. But then not only Russia would suffer, but the entire global market. The deficit scenario would return to the table—and with it, prices above $100 per barrel. That's precisely why the US is acting surgically, trying to pressure profitability rather than supply.
The October 2025 sanctions are unlikely to be the last. The EU is discussing updating the price cap and tightening freight controls. The US is signaling readiness to pursue companies participating in circumvention schemes. But the key question remains the same—what counts as success?
If the goal is to make Russian oil disappear, the result is weak. If the goal is to make it less profitable—then the sanctions are working. The market has received the signal: "Russian oil remains, but it's toxic—demand a discount."