New Delhi: The United States has imposed sweeping sanctions on Russia’s two largest oil companies, Rosneft and Lukoil, marking one of the biggest escalations in economic action against Moscow since the start of the Ukraine conflict. The move has already pushed oil prices higher and raised questions about the potential fallout on global energy markets, including India, which has emerged as a key buyer of Russian crude over the past two years.
What the sanctions target
The sanctions announced by the US Treasury Department’s Office of Foreign Assets Control (OFAC) apply to Lukoil, Rosneft and several of their subsidiaries involved in production, shipping, and trade. These companies account for more than half of Russia’s oil output. The sanctions are designed to restrict their access to international financing and prevent Moscow from using oil revenue to fund its war efforts.Treasury Secretary Scott Bessent said the US is prepared to take further action “if necessary” to support President Donald Trump’s effort to bring Russia to the negotiating table. The announcement came just after the postponement of a planned meeting between Trump and Russian President Vladimir Putin, adding to geopolitical uncertainty.
Immediate impact on oil markets
The sanctions led to a sharp jump in oil prices, with West Texas Intermediate (WTI) crude rising 3.5 per cent to $60.56 per barrel in early trade. The rise reflects concerns that Russian exports could be disrupted, even though the measures have not yet targeted crude buyers directly. Traders are factoring in tighter supply in the near term, as shipping, insurance and payments involving Russian firms may now face additional scrutiny.According to Jorge Leon, Head of Geopolitical Analysis at Rystad Energy, “The sharp rise in oil prices following the announcement underscores market fears that Russian crude exports – particularly to India, one of its key customers – could fall sharply.”
Why this matters for India
India has become one of the biggest importers of Russian oil since the start of the Ukraine war, as discounts made it an affordable option for domestic refiners. If sanctions make it difficult to transport or insure Russian cargoes, Indian refiners could face challenges in securing supplies. For now, there are no direct curbs on buyers of Russian oil, but any tightening in enforcement could affect payment mechanisms or shipping access, leading to higher import costs.
Implications for OPEC+ production strategy
The sanctions arrive at a time when OPEC+ is gradually increasing oil production after years of output cuts introduced during the pandemic. If Russian output is curtailed because of sanctions, it would be economically difficult for Moscow to support further supply increases within the alliance. This could lead to internal tensions within OPEC+ as other member countries may push for higher production to take advantage of higher prices.
Leon noted, “This increasingly complex geopolitical backdrop could threaten the coherence of the OPEC+ strategy to gradually increase supply. If Russian production is curtailed, Moscow would find it economically and politically unviable to support further output increases within the alliance.”
How this shifts the geopolitical risk premium
Oil markets have been trading with a higher geopolitical risk premium due to conflicts in Ukraine and the Middle East. The new sanctions slightly reduce the possibility of Russian crude flowing unrestricted into global markets, tightening supply expectations and supporting prices. Analysts say Brent prices could retain a $1-$2 per barrel premium in the near term unless there is clarity on how the sanctions will be enforced.
What lies ahead
Much will depend on whether the US moves toward stricter enforcement, including secondary sanctions that penalise companies or countries doing business with Russia. If that happens, energy trade flows could be disrupted more significantly, affecting prices and strategic decisions by large importers like India.
Leon said, “The big question now is whether Washington’s latest sanctions will be enough to draw Moscow back to the negotiating table – and, if they fail to do so, what options remain to increase pressure without crossing the line into open confrontation.”
On the question of whether India will continue to buy Russian crude, Janiv Shah, vice president, oil markets analysis said: “Rystad Energy expects flows to India are at risk in particular. According to the evolving situation, major buyers of Russian crude, such as Reliance, along with state-owned companies purchasing Russian oil, plan to reduce their Russian crude imports in the near term due to the new sanctions. We believe the challenges to Chinese refiners would be more muted, considering the diversification of crude sources and stock availability. In any case, we see early signals of Middle Eastern spot premiums strengthening rapidly on market tightness, mirrored in benchmarks and market structure. A key metric would be cargoes being resold on the market by entities who want to maintain consistency and adhere to the latest round of sanctions.”
