Biden Takes Aim at Russian Oil. Trump Is Up Next.
Talk about a parting shot. After nearly three years of winking and nodding at Russian oil exports, President Joe Biden dealt them a body blow two weeks before leaving office. That is, if President-elect Donald Trump follows through.
Markets are guessing that Trump just might. The price of Brent crude
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oil has jumped 5% since the U.S. unveiled its latest sanctions on Russia on Jan. 10.
“These are the most significant sanctions we’ve seen” since Russia invaded Ukraine in February 2022, says Edward Fishman, a former U.S. sanctions official now at Columbia University’s Center on Global Energy Policy.
The new package places “blocking sanctions” on about half of the “shadow fleet” of oil tankers that Moscow has assembled to evade a $60 per barrel price cap imposed in early 2023.
It also targets Russia’s No. 3 and No. 4 oil companies, Surgutneftegas and Gazprom Neft, and its top two insurers. Any customer for these entities would be excluded from dollar-based financial transactions globally. Brent currently trades around $81 a barrel.
If enforced to the letter, Biden’s edict would cover more than 40% of Russia’s seaborne oil exports, calculates Matt Wright, principal shipping analyst at logistics consultant Kpler. That means close to two million barrels a day, or 2% of global supply.
The shadow fleet’s main customers, India and China, are signaling that they will heed the U.S. threat. China’s Shandong Port Group, a principal portal for oil imports, announced on Jan. 7 that it will bar any sanctioned vessels. “I was surprised to see the Shandong announcement,” Wright says. “It’s significant.”
Trump could annul Biden’s action for the same reason that Biden never took it earlier, keeping U.S. gasoline prices down. But the returning president also has reasons not to.
Trump could use the Biden sanctions as leverage over President Vladimir Putin ahead of talks to end the Ukraine war. Trump’s Treasury secretary pick, Scott Bessent, declared during his Senate confirmation hearing on Jan. 16 that he is “100% on board with taking sanctions up to levels that would bring the Russian Federation to the table.”
The measures’ effectiveness depends on how enthusiastically they are enforced, though, says Craig Kennedy, an associate at Harvard’s Davis Center for Russian and Eurasian Studies. “What counts are the quiet diplomatic conversations about whether this is in compliance or not,” he says.
U.S. inflation is down and domestic oil production up—by about those same two million barrels a day—since the hectic days of 2022, adds Joseph Webster, a senior fellow at the Atlantic Council.
Trump might welcome constraints on Russia as a spur for U.S. producers to pump still more, or a gift to his traditional friend Saudi Arabia, which he wants to entice into recognizing Israel. The Saudis are sitting on some three million barrels a day of spare crude oil capacity, according to the International Energy Agency.
“Trump is incentivized to knock some Russian oil off the market so Saudi could add a few hundred thousand barrels,” Webster conjectures.
The incoming president will steer a middle course and keep his options open, agrees Bob Yawger, energy futures strategist at Mizuho Americas. “He doesn’t need to police Biden’s order aggressively,” he says. Russian sanctions evaders remain innovative, he adds, transferring crude from the shadow fleet to “legitimate” vessels mid-ocean, among other tactics.
Still, the extra risk and hassle from new sanctions should at least widen the discounts that Russia has to accept from its current $6 to $10 a barrel, Yawger predicts.
With Putin’s military budget (officially) slated to jump 25% this year, that bite into revenue could hurt.