On January 14, 2025, the White House announced severe sanctions targeting the Russian oil sector, blacklisting nearly 200 vessels from its so-called shadow fleet and focusing on major Russian oil producers Gazprom Neft and Surgutneftegas.
Since the introduction of a price cap on Russian oil at the end of 2022, Moscow has largely found ways to circumvent these sanctions. However, analysts view the new measures as a significant blow to Russia's oil export capabilities.
Craig Kennedy, an independent expert on Russia at Harvard University’s Davis Center, characterized the sanctions as a 'painful blow' for Russia, suggesting that many vessels previously relied upon would now be immobilized in ports worldwide.
Benjamin Hilgenstock from the Kyiv School of Economics described the announcement as a 'very positive development' but emphasized the importance of maintaining pressure on phantom tankers until they are no longer operational.
The announcement coincided with a rise in crude oil prices, reaching their highest level since August. Analysts believe that the Biden administration's actions are motivated by anticipated oversupply in global oil markets by 2025.
The initial intent of the price cap was to stabilize markets by keeping Russian oil available while limiting the revenue it could generate. Western insurance and logistics services, which dominate global maritime transport, would not be available if Russian oil exceeded the $60 price cap.
To evade restrictions, Russia acquired hundreds of old tankers and constructed its shadow fleet, transporting oil to bulk-buying nations such as India and China, often using opaque insurance systems.
Despite a sharp decline in Russian oil revenues in the first six months post-cap, exports have largely rebounded over the past 18 months. According to the Center for Research on Energy and Clean Air (CREA), Russian crude export revenues increased by 6% in 2024, despite a 2% decrease in export volumes.
Oil revenues have been crucial for President Vladimir Putin, who has significantly increased military spending in an effort to gain an advantage in the ongoing conflict with Ukraine. Defense spending has more than tripled since 2021 and is projected to reach a record 13.5 trillion rubles ($131 billion) next year, marking a 25% increase.
'Oil has become immensely important for Russia now,' said Kennedy. 'They are under increasing pressure. With the loss of European gas markets, there is even more emphasis on maximizing oil revenues.'
The European Union has drastically reduced its purchase of Russian gas since the invasion in 2022. The effectiveness of sanctions on Russian energy directly impacts Putin's ability to wage war on his terms.
Ukrainian President Volodymyr Zelensky succinctly reacted to the new sanctions, stating, 'The less revenue Russia receives from oil, the sooner peace will be restored.'