The Biden administration’s time is almost up but in its final days it has taken decisive action on Russian oil, President Vladimir Putin’s main revenue source.
On January 10, the White House announced severe sanctions on Russia’s oil sector, blacklisting about 200 ships from its so-called shadow fleet and targeting Russian oil producers Gazprom Neft and Surgutneftegas.
Moscow has largely found ways to avoid oil-price-cap sanctions – which use various mechanisms to limit the sale of a barrel of Russian oil to $60 (€58.2) per barrel – because it To be introduced in late 2022. However, analysts are encouraged by the new developments.
Craig Kennedy, an independent Russia expert currently working at the Davis Center for Russian Studies at Harvard University, believes the latest sanction is “a painful blow” to Russia. “This means that some of the ships they thought they could rely on will be docked in ports around the world and will no longer be useful,” he told DW.
Benjamin Hilgenstock of the Kyiv School of Economics told DW the news was “very welcome,” but stressed the need to keep up the pressure. “Alliance countries need to continue approving shadow tankers until shadow fleets become history,” he said.
After this news, crude oil prices reached their highest level since August. However the Biden administration’s move was reportedly motivated by expectations that global oil markets will be oversupplied in 2025.
Oil is important for Russian spending
The initial idea behind the price cap was to avoid market disruption by keeping Russian oil on global markets while limiting the price received for the commodity. Western insurance and logistics services, which dominate global shipping, would not be provided if Russian oil were sold above the $60 limit.
Russia overcame this limitation by purchasing hundreds of old tankers and building its so-called shadow fleet. Those ships have been delivering oil to countries that buy large quantities of oil, such as India and China, often using opaque insurance schemes.
Although Russian oil revenues fell sharply in the first six months after the limits were imposed, they have recovered substantially over the past 18 months. According to the Center for Research on Energy and Clean Air (CREA), Russian crude oil export revenues are expected to increase by 6% in 2024, despite a 2% decline in export volumes.
Oil revenues have been crucial for President Vladimir Putin as he has dramatically increased military spending in an effort to gain an edge on the battlefield against Ukraine. Defense spending has more than tripled since 2021 and is set to reach a record 13.5 trillion rubles ($131 billion, €128 billion) in next year’s budget, another huge 25% increase.
“Oil is now extremely important to Russia,” Kennedy said. “The pressure on them is increasing. With the loss of European gas markets, there has been even more emphasis on the need to get out of oil as much as possible.” The EU has dramatically cut the amount of Russian gas it buys in 2022 following the invasion.
target tankers
When it became clear by the end of 2023 that Russia’s shadow fleet was helping it evade sanctions, the US began targeting individual tankers.
Kennedy believed the move was “incredibly successful”, adding that “as soon as a ship’s name and number came on this list, countries like India and China could seize any Russian oil shipped on those ships.” Didn’t want to accept.”
Russia was forced to stop using many ships. Kennedy said, “With the stroke of a pen in Washington, they were able to render dozens of tankers worth $40 million worthless.”
However, the US stopped designating individual tankers in March 2024, with speculation that the decision was influenced by fears that targeting Russian oil too heavily could cause price shocks ahead of the presidential election. .
Although the UK and the European Union (EU) have also started designating Russian tankers, experts say the US decision to restart the designations is significant.
Kennedy believes the sheer volume of Russian tankers now under US, UK and EU sanctions will increase pressure on Moscow. “It’s bypassing critical transportation hardware that they’ve invested billions of dollars into acquiring.”
harmful for moscow
While Russia will continue to earn billions of dollars from oil, the latest decisions will lead to losses.
Benjamin Hilgenstock says a combination of targeting individual tankers and cracking down on what is known as “verification fraud” – when shippers falsely claim that Russian oil cargoes are in line with oil limits – could hurt the Russian economy. Can seriously debilitate.
“It would be very painful,” he said. “It puts more pressure on the ruble and more inflation and cuts budget revenues and all these things.”
If India and China continue to avoid sanctioned tankers, it will force Russia to either adhere to the price cap or pretend to comply through fraudulent paperwork.
“You need to comply with the price cap, or you have to go through various distortions to misprice your oil,” Kennedy said. “Whatever the case, it’s risky for Russia and it’s going to be costly. So you’re looking at them losing a few dollars off the barrel, maybe even more.”
Less Oil, More Peace?
While discussions about price caps or the dynamics of insurance fraud may seem abstract, the bottom line is that successful sanctions on Russian energy directly impact Putin’s ability to fight a war on his own terms.
Kennedy said, “It undermines confidence in Moscow that they will be able to prevent a sudden crisis, which would shatter the illusion that Russia is somehow resilient and able to fight on for as long as needed.” “
Ukrainian President Volodymyr Zelensky put it succinctly when reacting to news of the latest sanctions. “The less revenue Russia earns from oil, the sooner peace will be restored,” he wrote on Platform X.
Edited by: Uwe Hessler
