Trump does what Brussels couldn’t: Kill Russian oil in Europe

Former Lukoil executive warns that new U.S. sanctions are “catastrophic”.

BRUSSELS – Donald Trump’s surprise decision to sanction Russia’s biggest oil companies will not paralyze Vladimir Putin’s war machine, but it will help EU expel Russian oil from the bloc.

Trump announced on Wednesday “tremendous new sanctions ” targeting Russia’s Lukoil, and Rosneft (the state-owned oil company). These are the first U.S. Sanctions against Moscow since Trump took office.

Details of the new measures have yet to be finalized. The details of the new measures are still being worked out.

The sanctions will kick in on Nov. 21 .

The announcement comes one month after Trump blasted Europe, saying that they were “inexcusably”, continuing to purchase energy from Russia. This provides about a quarter for the Kremlin war chest.

He also sent an ultimatum to Europe at the time. He wrote: “I’m ready to do major sanctions on Russia once all NATO Nations agree, and start, to do the similar thing and when all NATO Nations STOP BUYING oil from Russia.”

He’s now followed through.

Damage, not destroy

The new sanctions for Moscow will cause immediate pain but they are unlikely to reduce its war effort in Ukraine.

David Fyfe is the chief economist of the Argus media consulting. He estimates that Rosneft, and Lukoil, account for two-thirds (4.4 million barrels) of the crude oil Russia exports every day.

He said that the sanctions could take away “half” of these supplies as the firms are not allowed to sell their cargoes using dollars, which is the currency almost exclusively used for international crude oil trading.

Former Lukoil executives who spoke candidly and without anonymity about sensitive issues said that the sanctions would “significantly hurt” Lukoil. According to the source, up to 20% of revenue could be lost if the firm has to sell its stakes from Egypt to Iraq.

Homayoun Falikshahi is the head of crude analysis at Kpler commodities, and he said that the majority of Chinese buyers and Indians, Russia’s largest oil trading partners will likely continue to import from Moscow due to its lower prices and the limited options in China.

He said that after an initial hiatus “most buyers will go back to buying” once they find workarounds, such as purchasing cargoes through companies which conceal their Russian ownership.

“This will complicate exports and trade,” said Vladimir Milov, a former Russian deputy energy minister-turned-Putin critic. These companies have already put in place alternative work plans, so the damage will be minimal.

On Thursday, Putin himself acknowledged the new sanctions as “serious,” and blasted the move as “unfriendly” that did nothing to strengthen Russian American relations.

Lingering presence

One place where these measures will have the most impact is Europe.

Since Moscow’s full-scale invasion in Ukraine began more than three year ago, the EU is trying to reduce its energy dependence on Russia.

Brussels has placed an embargo against Russian fuel, coal and crude oil entering the bloc via sea. It has also reduced the Kremlin’s share of the EU’s gas market by 45 percent. (Now is finalizing a bill to bring this down to zero.

Rosneft has lost control over oil flows into Germany and its refineries in Europe since Berlin took control in 2022.

A spokesperson for the German Economy Ministry said: “We assume the United States’ actions… do not target Rosneft subsidiaries in Germany that are held by German states in trust.”

The EU also tightened its sanctions on Thursday against the Kremlin controlled company.

Lukoil is a different case. The largest private oil company in Russia operates hundreds of gas stations in the EU including about 200 in Belgium. It also runs giant refineries and fuel processing plants in Romania, Bulgaria and the Netherlands.

The oil is also supplied to Hungary and Slovakia which still depend on Moscow for up to 100 percent of imports. The two countries, despite being under intense pressure from EU, have resisted abandoning Moscow by utilizing a sanctions opt out.

Brussels has failed to take action against the company, despite having been linked to the circumvention of sanctions within the bloc.

POLITICO asked Rosneft and Lukoil for comments.

Lukoil: Out of Lukoil

Things are about to change.

Donovan, a sanctions expert, explained that the U.S. Treasury said it could impose sanctions against anyone who worked with Russian firms. This means no European bank would now be able to handle their payments.

She said that the move would send a strong message to European banks and businesses to stop doing this or else they risk sanctions.

The European Commission announced on Thursday that it was also considering its own transactional ban for Lukoil.

The new sanctions have sparked fears that oil supplies could be completely cut off for Hungary and Slovakia in particular.

One Slovak official who spoke frankly and was also anonymous admitted that if the law were to be enforced it would “lead to the stoppage of imports”. The government, he said, will “most probably” ask Washington for an exemption. The foreign ministry of Hungary did not respond to our request for comment.

The effects of these measures can already be felt. Finnish energy firm Neste On Thursday, Neste suspended fuel deliveries to Lukoil’s subsidiary Teboil following U.S. Sanctions against the company.

Cristian Busoi told POLITICO, Romania’s State Secretary for Energy, that Lukoil would now be “obligated” to sell the south-central Petrotel Refinery by next month deadline. He added, “We’d be happy to not have Lukoil any longer.”

A person with knowledge of the situation said that, according to the Dutch government, a quick sale by Lukoil of its stake in its refinery in southwest Zeeland is “the most probable scenario.”

Martin Vladimirov is a senior analyst for the Sofia-based Center for the Study of Democracy. He said that the eastern Bulgarian Neftochim refinery “will also have to cease operation on November 21” unless sold. The Bulgarian Energy Ministry declined to comment.

The former Lukoil executive said, “They will have to be bought.”

The person said that it would be “catastrophic” for the company.

Source: https://www.politico.eu/article/donald-trump-sanctions-russian-oil-europe-lukoil-rosneft/

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