The hard-hitting sanctions that President Donald Trump imposed this month on major Russian oil companies can deliver a serious blow to the teetering Russian economy, if they’re rigorously enforced — and Trump sticks to his guns.
Importantly, Trump’s order allows, for the first time, sanctions against buyers of Russian oil and banks that finance trade in that oil, including those in China, Hong Kong and India. Similar restrictions announced afterward by the European Union add to the impact. These moves will significantly harm China, which still needs access to the dollar-based financial system to facilitate the global flow of goods and services that lie at the heart of its growth model.
Which raises the question: Will Trump keep the sanctions in place long enough to change the behavior of Russian President Vladimir Putin and Chinese President Xi Jinping?
Trump has reaffirmed his intention to meet with Xi on Thursday at the Asia-Pacific Economic Cooperation summit. He has already changed his mind on the pressure campaign against Putin at least three times in recent weeks. Would Trump give up secondary sanctions on China in exchange for a deal on, say, U.S. soybean sales?
He shouldn’t. His new sanctions started getting results immediately. One day after they were imposed, China’s major state oil companies announced that they were pausing purchases of Russian oil. The status of purchases by smaller “teapot refineries” that buy most of the oil delivered via Moscow’s shadow fleet of tankers remains unclear. These small refineries have so far managed to avoid Western efforts to stop their illicit purchases, but they can’t long defy the oil import sanctions if Beijing determines they put its access to the dollar payment system at risk.
India, too, may be ready to slow its imports. India’s refiners are now the largest purchasers of seaborne Russian crude, and the country is a growing exporter of refined oil products to Europe. But the new U.S. and European sanctions include imports of refined products made with Russian oil. India, meanwhile, is trying to finish a trade deal with the United States, a leverage point that undoubtedly factors into its consideration of whether to cut off Russian supplies. Already, India’s largest refiner, Reliance Industries, has signaled it may suspend imports.
The argument for giving the sanctions time to bite is straightforward. The Russian economy faces severe problems. The central bank and economics minister have said that Russia is close to a recession due to the demands of the war in Ukraine. Oil and gas exports represented 32 percent of Moscow’s tax revenue in 2024. Liquidity in its sovereign wealth fund has dwindled to less than 3 percent of GDP, and it’s having a hard time selling bonds to cover its budget deficit. The Stockholm Institute of Transition Economics warns that the risk of a banking crisis is rising.
Going back to the Biden administration, U.S. policy on the Russian oil trade has pivoted on a desire to avoid provoking a domestically damaging spike in oil prices. The possibility that oil sanctions could yield a big jump in crude costs is also a talking point of the Russian central bank when it suggests the Russian economy can withstand Western pressure. Partial sanctions initiated by the Biden administration caused prices of Russian crude to be deeply discounted early in the war, undercutting Moscow’s wartime budget.
Overall, however, global prices have remained moderate. This is partly because of record levels of U.S. production. Saudi Arabia has ample excess capacity that could help replace Russian supplies. The U.S. and Canada also have the ability to ramp up production, although not as quickly as the Persian Gulf states. Even after the new sanctions were announced, both the Brent and West Texas benchmarks remain between $60 and $65 per barrel, hardly a price harmful to Western economies.
As Trump continues his breakneck negotiations with China, Russia and India, it is vital that he stay the course. His sanctions are significantly reducing Russia’s ability to finance its war of aggression. New secondary sanctions on banks in China could also result in Putin losing access to needed technology such as semiconductors, machinery parts and other war-related equipment.
Trump has sent the strongest message yet to Xi about the costs of supporting his Russian friend for life — a message that could have a big impact on China’s ability to maintain its own growth model. Forget the superficial deals. There are real concessions to be won. They hinge on rigorous sanctions enforcement against both Russia and the buyers of its energy exports.