US hits Russian oil in toughest sanctions yet in bid to give Ukraine, Trump leverage

By Timothy Gardner and Daphne Psaledakis

WASHINGTON (Reuters) -The Biden administration on Friday imposed its broadest package of sanctions yet targeting Russia's oil and gas revenues in an attempt to give Kyiv and the incoming administration of Donald Trump leverage to reach a deal for peace in Ukraine.

The move is meant to cut Russia's oil revenues for the war that started in February, 2022, and has killed or wounded tens of thousands and reduced cities to rubble.

The measures are "the most significant sanctions yet against the Russian energy sector, the largest source of revenue for the Kremlin's war machine," a senior Biden official told reporters in a call.

The U.S. Treasury slapped sanctions on Russian companies Gazprom (MCX:GAZP ) Neft and Surgutneftegas that explore, produce and sell oil and 183 vessels that have shipped Russian oil, many of which are in the so-called shadow fleet of aging tankers operated by non-Western companies. They also include networks that trade the petroleum.

Many of those tankers have been used to ship oil to India and China as the price cap imposed by the Group of Seven countries in 2022 has shifted much of Russian oil trade from Europe to Asia. Some of the tankers have shipped both Russian and Iranian oil.

The logic of the sanctions "is to hit every stage of the Russian oil production and distribution chain," the official said. They should cost Russia billions of dollars per month, if sufficiently enforced, the official said.

The sanctions target oil producers, tankers, intermediaries, traders, and ports.

"There is not a step in the production and distribution chain that's untouched and that gives us greater confidence that evasion is going to be even more costly for Russia," the official said.

The measures allow a wind-down period until March 12 for sanctioned entities to finish energy-related transactions. Still, sources in Russian oil trade and Indian refining said the sanctions will cause severe disruption of Russian oil exports to its major buyers India and China.

Gazprom Neft said the sanctions are unjustified and illegitimate and the company will continue to operate.

Global oil prices jumped more than 3% ahead of the Treasury announcement, with Brent crude nearing $80 a barrel, as a document mapping out the sanctions circulated among traders in Europe and Asia.

The sanctions are part of a broader effort, as the Biden administration has furnished Ukraine with about $64 billion in military aid since the invasion. This includes $500 million this week for air defense missiles, air-to-ground munitions and support equipment for fighter jets.

Friday's move followed U.S. sanctions in November on banks including Gazprombank, Russia's largest conduit to the global energy business, and earlier in the year on dozens of tankers carrying Russian oil.

The Biden administration believes that November's sanctions helped push Russia's ruble to its weakest level since the beginning of the invasion and pushed the Russian central bank to raise its policy rate to a record level of over 20%.

"We expect our direct targeting of the energy sector will aggravate these pressures on the Russian economy that have already pushed up inflation to almost 10% and reinforce a bleak economic outlook for 2025 and beyond," a second Biden administration official said.

LEVERAGE

Biden aides have briefed Trump's aides on the sanctions. But a Biden official said it is "entirely" up to Trump, who takes office on Jan. 20, on when and on what terms he might lift any Biden-era sanctions. The military aid and the sanctions "provide the next administration a considerable boost to their and Ukraine's leverage in brokering a just and durable peace," one of the officials said.

The return of Trump, a Republican, to the White House has sparked hope of a diplomatic resolution to end Moscow's invasion but also fears in Kyiv that a quick peace could come at a high price for Ukraine.

Advisers to Trump have floated proposals to end the war that would effectively cede large parts of the country to Russia for the foreseeable future.



The Trump transition team did not immediately respond to a request for comment about the new sanctions.

Any administration wishing to reverse the new sanctions will have to notify Congress and give Congress the ability to take a vote of disapproval, said one of the Biden officials, who added that a number of Republican members of Congress have urged Biden to impose Friday's sanctions.

Source: Investing.com