More war, not peace

In imposing direct sanctions on two of Russia’s largest oil exporters, Rosneft and Lukoil, Trump seems to have changed his mind on Putin. After months of holding out incentives to get Russia to end its war in Ukraine, White House is now going after Moscow’s war ATM. But will it work? Rosneft and Lukoil push out nearly two-thirds of the 4.4mn barrels of crude Russia exports every day. So these sanctions are big. But Putin has shrugged off their impact, perhaps secure in the knowledge that the two Russian companies have already planned workarounds. Significant volumes of Russian oil exports are denominated in yuan and rubles. So, Rosneft and Lukoil can push out their crude through a shadowy, ownership-obscuring network of intermediaries.

But it’s less than ideal. Much will also depend on US resolve to impose secondary sanctions on entities that do business with Russian energy majors. That threat has some weight. Already Indian refineries have indicated they will suspend Russian crude imports. EU too is getting tougher on third parties. Lukoil, which has hundreds of gas stations in Europe and stakes in refineries, will have to sell them. China, however, may continue buying.

So will this bring Putin to the negotiating table? Unlikely for now. The sanctions, along with ongoing Ukrainian drone strikes on Russian energy infra, will squeeze Russian energy revenues, but not enough to change Moscow’s position immediately. Second, Trump is mercurial and he may change his mind again, especially if US pump prices – currently comfortable – start hurting Americans. He may then have to backtrack or force Opec to produce more to keep prices down. Thus, multiple variables are at play. Trump’s changed his posture towards Russia. But will he stay the course? Peace in Ukraine doesn’t look any more likely.

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