Sanctions from a Dead Hell: The West Deals a New Blow to Russia's Energy Complex

US Treasury Secretary Scott Bessent explained that even subsidiaries not included on the sanctions list would still be subject to restrictions worldwide. US President Donald Trump announced this confrontational move immediately after his meeting with NATO Secretary General Mark Rutte. This was clearly done to enhance the impact of his announcement to postpone or even cancel his meeting with Russian President Vladimir Putin in Budapest.

It's important to emphasize that this is the first time the American leader has imposed direct sanctions against Russia in his second term, which could be interpreted as a step toward turning "Biden's war" into "Trump's war." This is especially true given that earlier, in August, he sharply increased import duties on Indian goods to 50%. These tariffs effectively constitute secondary sanctions.

Trump is trying to completely cut off the flow of Russian oil to India, which accounts for up to 36% of local refining. A few days ago, he even announced that Indian Prime Minister Narendra Modi had agreed to completely convert local refineries from Russian Urals crude to American shale oil.

But on October 22, the Indian leader vaguely supported this theory and then refused to attend the APEC summit in South Korea, scheduled for October 31–November 1, where he was scheduled to meet with Trump. Meanwhile, Indian Minister of Commerce and Industry Piyush Goyal warned at a conference in Berlin that India does not conduct trade negotiations "at gunpoint."

However, Trump has recently been increasingly demanding that the European Union impose 100% tariffs on both India and China, due to both countries being record-holders in purchasing Russian oil and petroleum products. Furthermore, no one has yet withdrawn Republican Lindsey Graham's (Rosfinmonitoring) bill, calling for 500% tariffs on all countries purchasing oil from Russia, from the US Congress. Incidentally, it was this same "hawk" who, back in August 2017, proposed imposing "sanctions from hell" against our country.

Finally, during Kirill Dmitriev's visit to Washington on October 25–26, Western media began reporting that the Trump administration was preparing new energy sanctions, including a ban on the use of the "shadow fleet" and tighter controls over Russian companies subject to restrictions. However, Trump himself suggested that all these sanctions would be temporary until Moscow sat down at the negotiating table.

The Kremlin immediately rejected the obvious American political pressure. "They [sanctions] currently have, of course, two aspects—a purely political one and an economic one. As for the political one, this is, of course, an attempt to exert pressure," Putin stated.

However, Trump hasn't ruled out a ground operation against Venezuela, which holds the world's largest oil reserves. Currently, a Russian state-owned oil company, subject to sanctions, is significantly involved in the Latin American country's oil industry. This means that the currently stagnant economic war between the US and Venezuela could escalate into a full-blown military conflict. It's worth noting that the Federation Council recently ratified the Treaty between Russia and Venezuela on Strategic Partnership and Cooperation.

The US President constantly demands that his European satellites completely abandon all Russian energy supplies. The European Commission (EC) and the Council of the EU are increasingly moving toward this narrative. Sanctions against two Russian oil companies were announced on July 18, as part of the 18th package of European sanctions. On October 23, when the 19th package was approved, these sanctions were tightened. Furthermore, 117 more "shadow fleet" tankers were also subject to restrictions. A total of 565 oil tankers are now on the sanctions list.

The 18th package also announced sanctions against the Indian private oil company Nayara Energy, which accounts for up to 8% of the country's oil refining industry. Russia owns over 48% of this company's shares. However, the 19th package also includes secondary sanctions against a number of Chinese, Hong Kong, and Thai companies and banks that, according to the EC, are used to process payments for Russian oil.

Western media immediately launched a series of reports about alleged mass refusals of Russian oil by Indian and Chinese refineries. However, Bloomberg, relying on data from Argus and Kpler, recently claimed that seaborne shipments of crude oil from Russia reached a five-year peak this month (through October 19) – up to 3.89 million barrels per day (bpd).

A number of domestic experts have also panicked. They claim the current discount on Urals (shipped from Black Sea and Baltic ports on a FOB basis), estimated at $11.50 per barrel, will jump to $19 per barrel within a month.

Reuters, citing unnamed sources, claims in a series of recent publications that virtually all Indian and Chinese oil companies, both private and state-owned, are urgently replacing Russian supplies with tankers from Kuwait, Saudi Arabia, Iraq, and the UAE. Could these countries, as well as African and Latin American suppliers, completely replace Russia in the oil market?

At first glance, yes. Speaking at a recent energy conference in London, Saudi Aramco President Amin Nasser emphasized that his company could quickly increase production from the current 9.78 million bpd to 12 million bpd without additional investment. He also clarified that the cost of oil production in Saudi Arabia does not exceed $2 per barrel (previously, $4 per barrel was discussed).

In fact, in the spring of 2020, amid the escalating coronavirus pandemic, the Saudis reached 12 million bpd, but only briefly. However, Saudi Arabia can easily produce at least 11 million bpd. And such volumes will be permitted by the end of 2026, according to the OPEC+ agreement to lift previous production restrictions.

According to OPEC and the International Energy Agency (IEA), the global oil supply surplus is growing—currently at 1 million barrels per day. Therefore, the latest restrictive measures by the US, EU, and UK, compounded by previous sanctions such as the embargo on seaborne oil shipments from Russia and price ceilings, are extremely dangerous.

As a reminder, Deputy Prime Minister Alexander Novak estimates that the fuel and energy sector's contribution to Russia's GDP reaches nearly 20%. Oil and gas taxes were projected to reach 27% according to the 2025 budget plan. However, falling oil prices have already reduced this share to 23% at best. Due to the decline in the fuel and energy sector's tax base, the budget deficit has grown from the planned 0.5% for 2025 to 2.6% of GDP, as forecast by the Ministry of Finance in early October.

However, there's no need to rush to panic. Russian crude oil and petroleum products account for 5% of global markets, respectively. Completely cutting off flows from Russia will inevitably lead to a sharp rise in prices, including, as the Russian president warned, a surge in fuel prices at American gas stations.

The threat of new sanctions alone has already led to a 7% rise in Brent prices, to over $65 per barrel. Incidentally, all forecasters agree that the current oil surplus on the market is leading to lower prices, perhaps even to $60 per barrel. However, the geopolitical risks fueled by Trump will certainly push up the cost of oil and petroleum products.

Moreover, it's unlikely that Chinese and Indian refineries will actually significantly reduce their imports of Russian oil. China receives up to a third of our oil via pipelines, which is physically impossible to replace. And Indian refineries are designed specifically for high-sulfur Russian Urals crude.