Indian Council of World Affairs

Abstract: The paper focuses on the economic and geopolitical effects of the US's latest oil sanctions on Russia. It assesses the impact on trade dynamics and global energy markets. 

Introduction

On 10 January 2025, the United States (US) Treasury blacklisted 183 oil vessels and imposed sanctions on Russian oil companies Gazpromneft and Surgutneftgas.[i] This round of sanctions by the outgoing Biden administration is the largest imposed on Russia since the beginning of the Ukraine war in 2022. It affects about 42 percent of Russia’s total seaborne oil exports. As the war in Ukraine nears its three-year anniversary, it is clear that the West-Russia tensions continue to affect global energy supply chains. This paper explores the economic and geopolitical effects of the latest oil sanctions. It assesses the impact on trade dynamics and global energy markets.

The Ukraine-related sanctions imposed by the West since 2022 have targeted Russia’s economy, particularly in the energy sector that supports budgetary stability.[ii] In addition, the separation of Russian banks from SWIFT (a messaging network that financial institutions use to securely transmit information and instructions through a standardised system of codes) and the freezing of central bank reserves have interrupted financial transactions. [iii] The sanctions also resulted in Western businesses’ exit, disrupting the industrial supply networks and technology imports.[iv]

In the case of the European Union (EU), overdependence on Russian energy posed serious challenges. The sanctions have compelled the EU to seek alternative and much costlier energy sources. The manufacturing sectors have been severely strained, causing inflation. According to the Russian Direct Investment Fund (RDIF) CEO, Kirill Dmitriev, “Europe is suffering from not receiving Russian gas, with expected losses of more than €1 trillion,”[v] The IMF also revised the Euro region’s growth to only 0.8% in 2024 and 1.2% in 2025, underlining the economic strain.[vi] Globally, 10 percent of the world’s oil tanker fleet is currently subject to the sanctions announced on 10 January 2025. It has compelled several ships to leave important international ports and has increased shipping costs, discouraging some buyers and ports in China and India from engaging with the sanctioned tankers. Taking this forward, the global petroleum benchmark, Brent, on 13 January responded by rising cost beyond $81 per barrel, which is nearly 4% increase from the previous session.[vii]

In response to the latest sanctions, Russia is taking several actions to combat the economic disruptions caused by the international sanctions. Kremlin spokesperson Dmitry Peskov said sanctions will impact global energy markets, but Russia has efficient supply mechanisms and reserves. He also noted that other routes would ease the impact of the sanctions on it.[viii] One of the sanctioned companies, Gazpromneft said that it would keep functioning and declared that the penalties against it were unjustified.[ix]

Russian Response

To counter Western sanctions on Russian crude oil following the Russia-Ukraine war, Russia shifted its focus to refining crude oil into petroleum products, bypassing the sanctions. As a result, the exports of refined petroleum products have increased.[x] In addition, it has encouraged the use of its MIR (a Russian card payment system for electronic fund transfers established by the Russian Central Bank) and increased trade in local currencies, especially with China, to counter financial sanctions. In some trade deals, the de-dollarisation strategy has been adopted to reduce reliance on Western financial institutions.[xi] The Russian Central Bank has also increased interest rates and implemented capital controls to limit inflation and stabilise the rouble.[xii]

Diplomatically, Russia is improving its relationship with Iran as a strategic cooperation to mitigate the Western sanctions. On 17 January, both countries signed the new “strategic partnership” agreement in the presence of officials from both countries.[xiii] At the same time, Russia is enhancing its ties with other sanctioned countries like China and North Korea.[xiv]

The absence of secondary sanctions from non-Western countries like the United Arab Emirates (UAE), Saudi Arabia, Iran, Turkey, India and China have allowed them to trade with Russia.[xv] Besides, the International North-South Transport Corridor, a multi-modal trade route connecting Moscow with South Asia and the Persian Gulf, provides an alternate pathway to avoid the maritime checkpoints controlled by Western powers. This corridor also serves as a geopolitical counterbalance to promote regional integration amongst non-western countries.[xvi]

Global Energy and Policy Shifts

The latest round of sanctions affects consumers like China and India, who have continued to purchase Russian oil in the last three years. The discounted Russian oil decreased India’s crude oil import bill by approximately $25 billion in the fiscal year 2023-24.[xvii] But, since December 2024, India began to increase its Middle Eastern oil imports, reaching 52 percent of its total, the highest level in 22 months.[xviii] However, in the process, this may increase fuel import costs and increase the domestic fuel price. Nevertheless, India is looking at increased imports from the US to check this shift, as mentioned by Minister of Petroleum and Natural Gas Hardeep Singh Puri.[xix] The spot premium on Middle Eastern crude oil surged to a two-year high after the 10 January sanctions, indicating how global oil markets are segmented with fewer buyers for Russian crude oil. It will likely result in better negotiations for the buyers, allowing Russia to implement competitive pricing mechanisms.[xx]

Meanwhile, initially in the US, there was speculation that Donald Trump would adopt a lenient position with Russia. In contrast, after taking over the office, Donald Trump’s recent statements and actions marked a more assertive strategy to pressurise Russia into the negotiations. He urged Russia to stop the war and threatened to impose substantial tariffs and sanctions on Russia if the war persists.[xxi] Along with this, he is urging the Organization of the Petroleum Countries (OPEC) to decrease the oil price to run down the Russian oil revenue.[xxii] In addition, Trump’s nominees, such as Scott Bessent, Lt. Gen. Keith Kellogg and other prominent leaders associated with the Trump administration, are likely to advise him for a stricter sanction policy, which might adversely shift global energy politics. [xxiii]

Conclusion

The increasing tensions in Russia’s economy caused by Western sanctions and countermeasures from Russia and its trade partners reflect the complex dynamics of the global energy market. It has exposed the vulnerabilities in existing trade networks, reshaped global supply chains and stimulated noteworthy policy shifts. Russia’s countermeasures underscored its resilience in driving economic isolation. Meanwhile, major consumers like India continue to realign their energy markets with the dual pressures of affordability and diversification whilst protecting their national interests.

The way forward for India is to enhance its strategic reserves to mitigate short-term price shocks and supply chain disruptions. Invest in domestic capabilities and renewable energy, leading to self-reliance. Promote research in alternative fuels like hydrogen and biofuels to reduce import dependency. Strengthen geopolitical partnerships with the US, Latin America, Africa, Russia, Japan, Europe and other countries to enhance energy diplomacy and uphold the strategic autonomy of India. Leverage competitive pricing through negotiation and diversifying the energy sources from various regions like West Asia, Africa and the Americas. It will not only protect India’s economy from global disruptions but also position it as a resilient player in shaping the frameworks of international energy security.

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*Aravindhan G, Research Intern, Indian Council of World Affairs, New Delhi
Disclaimer: Views expressed are personal. 

Endnotes

i Treasury intensifies sanctions against Russia by targeting Russia’s oil production and exports. (2024, December 23). U.S. Department of The Treasury. https://home.treasury.gov/news/press-releases/jy27770.

[ii] Kennedy, C. (2023, February 6). Russian fiscal budget shows 35% decline for January. OilPrice.com. https://oilprice.com/Latest-Energy-News/World-News/Russian-Fiscal-Budget-Shows-35-Decline-For-January.html.

[iii] Tass. (2025, January 16). Russia’s international reserves down $1.8 bln in one week to $607.7 bln — Central Bank. TASS. https://tass.com/economy/1900187.

[iv] Beyond mandated sanctions: Western firms’ voluntary departure from Russia. (2023, July 16). CEPR. https://cepr.org/voxeu/columns/beyond-mandated-sanctions-western-firms-voluntary-departure-russia

[v] Rt. (2025, January 18). EU faces up to €1 trillion loss over cutting Russian gas – Moscow sovereign wealth fund. RT International. https://www.rt.com/business/611059-eu-losses-russian-gas/.

[vi] Reuters. (2024, October 22). IMF cuts forecasts for German economy this year and next. LSEG

 https://www.reuters.com/world/europe/imf-cuts-forecasts-german-economy-this-year-next-2024-10-22/.

[vii] Reuters. (2025, January 13). Oil hits more than 3-month high as US sanctions hit Russia exports. The Economic Times. https://economictimes.indiatimes.com/markets/commodities/news/oil-hits-more-than-3-month-high-as-us-sanctions-hit-russia-exports/articleshow/117186071.cms.

[vii] Yahoo is part of the Yahoo family of brands. (n.d.). https://www.yahoo.com/news/kremlin-says-us-sanctions-destabilize-120523210.html

[ix] Reuters. Russian oil firm shrugs off sanctions, insurer says dodgy operators will profit. LSEG https://www.reuters.com/business/energy/russian-oil-firm-shrugs-off-sanctions-insurer-says-dodgy-operators-will-profit-2025-01-10/.

[x] Rt. (2025b, January 17). Russian oil product exports shoot up – Bloomberg. RT International. https://www.rt.com/business/611063-russian-oil-products-exports-rise/.

[xi] Times, G. (n.d.). Over 80% of Russia-China trade settlement now using local currencies: Russian president. Copyright 2021 by the Global Times. https://www.globaltimes.cn/page/202306/1292737.shtml?

[xii] Russia’s central bank raises interest rate to 21% to fight inflation boosted by military spending | AP News. (2024, October 25). AP News. https://apnews.com/article/russia-interest-rates-0fa1d7385be622fd98756a5b4e715262.

[xiii] Golshiri, G., Hoorman, C., Quénelle, B., & Vincent, E. (2025, January 21). Why Russia and Iran signed a new “strategic partnership.” Le Monde.fr. https://www.lemonde.fr/en/international/article/2025/01/21/why-russia-and-iran-signed-a-new-strategic-partnership_6737252_4.html.

[xiv] Kurlantzick, J. (2024, December 10). Alliance of Autocracies: Part 3. Council on Foreign Relations. https://www.cfr.org/blog/alliance-autocracies-part-3.

[xv] Mills, C. & Commons Library. (2025). Sanctions against countries supporting Russia’s invasion of Ukraine. In Commons Library Research Briefing (No. 10048) https://researchbriefings.files.parliament.uk/documents/CBP-10048/CBP-10048.pdf.

[xvi] Fillingham, Z. (2024, September 10). Geopolitics of the International North-South Transport Corridor (INSTC). Geopolitical Monitor. https://www.geopoliticalmonitor.com/geopolitics-of-the-international-north-south-transport-corridor-instc/?.

[xvii] Jayaswal, R. (2024, May 13). India saved $25 billion by importing Russian crude oil: Ministry data. Hindustan Times. https://www.hindustantimes.com/business/india-saved-25-billion-by-importing-russian-crude-oil-ministry-data-101715578085694.html?.

[xviii] Business Standard. (2025, January 17) Opec’s share in India’s annual oil imports rises after 8 year drop. https://www.business-standard.com/markets/commodities/opec-s-share-in-india-s-annual-oil-imports-rises-after-8-year-drop-125011700552_1.html.

[xix] msn. (2025, January 21). Possibility of more US energy coming to India: Hardeep Singh Puri. Possibility of more US energy com https://www.msn.com/en-in/politics/government/possibility-of-more-us-energy-coming-to-india-hardeep-singh-puri/ar-AA1xzwzV?ocid=BingNewsSerping to India: Hardeep Singh Puri.

[xx] Sukalp Sharma. (2025, January 11). Iraq, UAE gain as India’s Russian oil imports slip to 12-month low I Dec amid Moscow’s low in Dec amid Moscow’s high domestic demand. The Indian Express. https://indianexpress.com/article/business/commodities/iraq-uae-india-russian-oil-imports-slip-12-month-low-december-moscow-high-domestic-demand-9773081/.

[xxi] Reyes, R. (2025b, January 22). Trump tells Putin to end Ukraine war now -- or else: “We can do it the easy way, or the hard way.” New York Post. https://nypost.com/2025/01/22/us-news/trump-tells-putin-to-end-ukraine-war-now-or-else-we-can-do-it-the-easy-way-or-the-hard-way/?.

[xxii] Madhani, A., & McDERMOTT, J. (2025, January 24). Trump leans in on targeting Russian oil revenue as he tries to fulfill pledge to end Ukraine war | AP News. AP News. https://apnews.com/article/trump-russia-oil-opec-ukraine-8f87a106b60f615040cea277096d330d?.

[xxiii] Rt. (2025d, January 18). Trump Treasury nominee threatens tougher Russia sanctions. RT International. https://www.rt.com/news/611057-trump-treasury-nominee-russia-sanctions/.