The Biden administration announced on Friday the implementation of its most extensive sanctions package to date, aimed at disrupting Russia‘s oil and gas revenue streams. This initiative seeks to provide leverage to Kyiv and the incoming Trump administration in their efforts to negotiate a peace agreement regarding the ongoing conflict in Ukraine.

These sanctions are designed to diminish Russia’s oil income, which has been crucial for funding the war that began in February 2022, resulting in significant casualties and widespread destruction of urban areas.

According to a senior official from the Biden administration, these measures represent “the most significant sanctions yet against the Russian energy sector, the primary source of funding for the Kremlin’s military operations.” The U.S. Treasury has targeted Russian firms Gazprom Neft and Surgutneftegas, which are involved in the exploration, production, and sale of oil, along with 183 vessels that have transported Russian oil. Many of these vessels belong to a so-called shadow fleet of aging tankers operated by non-Western entities, and the sanctions also encompass networks engaged in petroleum trading.

A considerable number of these tankers have been utilized to transport oil to India and China, particularly following the price cap established by the Group of Seven nations in 2022, which redirected much of Russia’s oil trade from Europe to Asia. Some of these vessels have been involved in transporting both Russian and Iranian oil.

The rationale behind the sanctions is to target every aspect of the Russian oil production and distribution process, with the expectation that, if effectively enforced, they could result in losses of billions of dollars per month for Russia, as stated by the official.

The sanctions are aimed at oil producers, tankers, intermediaries, traders, and ports. An official stated, “Every aspect of the production and distribution chain is affected, which increases our confidence that evasion will be significantly more expensive for Russia.” The measures provide a transition period until March 12 for sanctioned entities to complete energy-related transactions. However, sources within the Russian oil trade and Indian refining sectors indicated that these sanctions will severely disrupt Russian oil exports to key markets such as India and China.

Gazprom Neft has condemned the sanctions as unjust and illegitimate, asserting that the company will maintain its operations. In anticipation of the Treasury’s announcement, global oil prices surged over 3%, with Brent crude approaching $80 per barrel, as a document detailing the sanctions circulated among traders in Europe and Asia. These sanctions are part of a larger initiative, with the Biden administration having provided approximately $64 billion in military assistance to Ukraine since the onset of the invasion, including $500 million this week for air defense missiles, air-to-ground munitions, and support equipment for fighter jets. This latest action follows U.S. sanctions imposed in November on banks such as Gazprombank, which is Russia’s primary link to the global energy market, as well as earlier sanctions on numerous tankers transporting Russian oil.

The Biden administration asserts that the sanctions imposed in November contributed to the Russian ruble reaching its lowest value since the onset of the invasion, prompting the Russian central bank to increase its policy interest rate to an unprecedented level exceeding 20%.

“We anticipate that our focused actions on the energy sector will intensify the existing pressures on the Russian economy, which have already driven inflation close to 10%, and will further solidify a grim economic forecast for 2025 and beyond,” stated a second official from the Biden administration.

LEVERAGE

Biden’s aides have informed Trump’s team about the sanctions. However, a Biden official emphasized that the decision regarding the timing and conditions for lifting any sanctions from the Biden era rests solely with Trump, who will assume office on January 20. The military assistance and sanctions “offer the incoming administration significant leverage in negotiating a fair and lasting peace,” one official remarked.

Trump’s potential return to the presidency has raised hopes for a diplomatic solution to conclude Moscow’s invasion, yet it has also generated concerns in Kyiv that a swift resolution might come at a substantial cost to Ukraine. Trump’s advisors have proposed strategies to end the conflict that would essentially surrender large portions of the country to Russia for the foreseeable future.

The Trump transition team has not yet responded to inquiries regarding the new sanctions. Any administration seeking to reverse these sanctions will need to inform Congress and allow for a vote of disapproval, according to one Biden official, who noted that several Republican members of Congress have urged Biden to implement the sanctions announced on Friday.