US President Donald Trump has warned Russia that he will impose economic measures including taxes, tariffs, and sanctions unless Russian President Vladimir Putin agrees to end the war in Ukraine. While it is far from clear whether economic pressure alone can bring Putin to the negotiating table, Russia’s oil and gas industry looks to be the most vulnerable sector of his wartime economy.
United States sanctions on Russia’s energy industry have already been tightened in the first weeks of 2025. Just before leaving the White House, outgoing US President Joe Biden fired a parting salvo of comprehensive new sanctions on Russian oil producers, intermediaries, tankers, traders, and ports handling both oil and liquefied natural gas (LNG).
This package was widely seen as one of the most aggressive since the start of Russia’s full-scale invasion. The impact is already being felt globally. Some banks in India, which currently takes around 40 percent of all Russian oil supplied to international markets, are reportedly blocking payments for Russian oil imports. Meanwhile, fleet capacity to service Russian crude exports is expected to shrink significantly due to the latest restrictions.
With oil sanctions also targeting major producers such as Surgutneftegaz and Gazprom Neft as well as more than 180 vessels in the Russian oil fleet, some observers are now predicting that the Kremlin could lose up to $24 billion during the coming year. This would be equal to around one percent of the country’s projected GDP.
These latest sanctions come as Moscow is already adjusting to the end of gas transit through Ukraine, after Kyiv refused to extend a five-year deal that expired at the start of the current year. With the termination of this gas transit agreement, Russia has lost another sizable chunk of the European market.
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Trump vowed during his January 20 inaugural address to “drill, baby, drill.” Since then, initial steps in support of the United States fossil fuels sector have included lifting the Biden administration’s freeze on export permits for LNG projects.
Many now expect to see more LNG being exported from the United States to Europe, potentially replacing remaining Russian gas deliveries. Increasing US exports at a time when the Russian gas industry is already facing growing obstacles would place Trump in a strong position ahead of negotiations over a possible settlement of the war in Ukraine.
Trump could potentially increase the pressure on Putin by urging the Ukrainian authorities to ban the transit of Russian crude via Ukraine to Hungary. There is currently a bill in the Ukrainian parliament calling on the government to stop oil transit and deprive the Kremlin of up to $6 billion in sales to European buyers. Additional options include a lower price cap, further sanctions on remaining shipments, and expanded secondary sanctions.
The United States may have fewer options in terms of gas-related sanctions. With demand from key LNG importers such as China and India projected to recover in 2025, US exports may be diverted to Asia, leaving Europe more reliant on Russian LNG and pipeline gas. Additional LNG production from Canada’s western coast could create greater supply options later this year, but that may not be enough to satisfy European consumers or address concerns over rising energy bills.
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While Trump’s efforts to undermine Russia economically will face a range of practical challenges, there is no question that Putin’s energy empire is looking increasingly fragile.
Russia’s Gazprom in particular appears to be in a difficult position. The Kremlin’s flagship energy company has reported multi-billion dollar losses in the past two years, with this trend likely to worsen in 2025 due to the end of Ukrainian gas transit. The outlook for Gazprom is currently so troubled that the company is reportedly seeking to increase domestic gas prices.
The new United States administration has been quick to signal that it sees the Russian economy as the Putin regime’s most vulnerable point. Trump clearly aims to exploit this weakness in order to end the war in Ukraine. US efforts are likely to focus on the energy industry, which serves as the engine of the Russian war machine.
Ideally, the United States will work closely with the EU and UK in the coming months to expand current sanctions on the Russian energy sector while also working to tighten up the implementation of existing measures. This would send an unambiguous message to Moscow that Russia’s current economic woes will only worsen if Putin rejects a negotiated settlement and refuses to end the invasion of Ukraine.
Dr. Aura Sabadus is a senior energy journalist who writes about Eastern Europe, Turkey, and Ukraine for Independent Commodity Intelligence Services (ICIS), a London-based global energy and petrochemicals news and market data provider. Her views are her own.
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