The Gloves Are Still On: Why Washington’s Newest Oil Sanctions Won’t Be Enough to Pressure Putin

The Gloves Are Still On: Why Washington's Newest Oil Sanctions Won't Be Enough to Pressure Putin

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There is every reason to expect the same pattern this time around. As in previous cases, Chinese and Indian refiners have announced they'll be turning away from Russian oil. But if past is prologue, this initial phase will be short-lived, lasting only until Moscow's tried-and-true "oil laundering" playbook is up and running. Here's how it works:

• Shell companies purchase oil from the sanctioned entities within Russia's opaque, ruble-denominated market.
• Unscrupulous traders buy the oil from the shell companies and receive fraudulent certificates of origin.
• Russian barrels change hands through ship-to-ship transfers, often with tracking beacons turned off, and are sometimes discharged into onshore tanks to further obfuscate their origin.
• Traders and refiners in the compliant markets purchase the barrels, typically in U.S. dollars, with no paper trail linking the cargoes to the sanctioned entities.

This modus operandi was most recently employed after January 10, 2025, when the outgoing Biden administration hit smaller Russian oil firms Gazpromneft and Surgutneftegas with similar blocking sanctions.

Assuming no stringent secondary sanctions are to follow (discussed below), Rosneft and Lukoil volumes will likely continue to reach the market, relabeled without the sanctioned company names. Oil formerly tagged as Rosneft and Lukoil will instead be sold by newly incorporated entities in Russia. Indian and Chinese firms will be able to say they halted shipments from the sanctioned entities, but Russian barrels will flow as before.

It will be obvious a couple of months after the November 21 implementation date that Russian oil is being smuggled on the black market; total volumes greater than 5 million barrels per day (mb/d), and a high proportion of crude oil in the mix, will be telltale signs that Rosneft and Lukoil (which together produce 5.3 mb/d of crude alone) are still in the game.

Proponents of the new blocking sanctions may hope that follow-on secondary sanctions will be the real hammer to disrupt Russian flows, but under current authorities could take too long to help Ukraine. The Treasury Department's executive authorities for imposing secondary sanctions carry a high evidentiary burden, meaning violators must basically be caught red-handed. Because of the slow pace of enforcement and the determination of nefarious actors in the oil trading world, the prognosis for quick success is unfavorable.

To appreciate the challenge, one need only look at results from the administration's "maximum pressure" campaign "to drive Iran's export of oil to zero, including exports of Iranian crude to the People's Republic of China." Nine months into the program, Iran's export volumes remain nearly unchanged despite a multitude of secondary sanctions orders. And virtually every Iranian barrel still goes to China, whose private refiners are apparently unintimidated by the Treasury Department's blacklist.

There is another potential weak link in the sanctions approach: the administration's proclivity for transactional foreign and trade policy. It may become very tempting for President Trump to issue waivers of the new oil sanctions to specific counterparties (think entities in India, Brazil, possibly even China) in exchange for compromises on bilateral trade deals and/or access to rare earths or critical minerals. This is especially true since any such waivers would likely be arranged via "specific licenses," the terms (and even existence) of which are not made public.

With the Trump-Xi summit just concluded amid positive vibes, Washington may look to sustain the momentum toward bilateral trade cooperation with Beijing-perhaps at the cost of enforcing the new sanctions on Russian oil.

For Best Results, Impose a Surcharge in Addition to Sanctions

The good news is that the sanctions have at least temporarily widened the discounts of Russian oil remaining on the market. Its contraband status will carry greater risk for counterparties, and all the middlemen and traders needed to operate the "shell game" will still take their cuts. This is constructive from Washington's perspective-the greater the discount, the less sales revenue for the Kremlin to pay for its war on Ukraine.

But these discounts alone are unlikely to change behaviors in Moscow. Returning to Figure 1 above, real financial pressure will come only if the widest discounts are maintained on a permanent basis, not mere temporary blips.

True maximum pressure could be achieved by accompanying the sanctions with a surcharge (basically a tax) imposed on buyers of Russian oil. Washington has the technology to track most of Moscow's oil export cargoes to destinations around the world. A dollar-per-barrel surcharge imposed on Russia's oil customers, payable to the Treasury or an international fund, would push Russia's sale prices to uncompetitively high levels because buyers would need to pay the international oil price (for example, $60 per barrel) plus the surcharge for doing business with Russia (say $20 per barrel). For Russia to maintain market share in that example, it would need to slash its price from $60 to $40 per barrel-that's a revenue cut of almost $3 billion per month.

If accompanied by strict enforcement, a targeted surcharge, and continued military backing for Kyiv, the new sanctions on Rosneft and Lukoil can serve as a powerful lever to degrade the resources sustaining Russia's war effort.

Clayton Seigle is a senior fellow in the Energy Security and Climate Change Program and holds the James R. Schlesinger Chair in Energy and Geopolitics at the Center for Strategic and International Studies in Washington, D.C.

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