In response to worldwide worry about surging crude prices caused by supply shortages linked to the conflict in Iran, the United States is temporarily relaxing certain sanctions on Russian oil shipments.
Designed to calm anxious markets regarding the interruption of Middle Eastern oil and gas flows, this decision highlights how the conflict has enhanced Moscow’s capacity to generate revenue from energy exports—a critical component of the Kremlin’s budget as it continues its invasion of Ukraine.
U.S. Treasury Secretary Scott Bessent announced on X that American sanctions will be suspended for 30 days for Russian oil already loaded onto tankers as of Thursday. This provides hesitant buyers with the clearance to purchase the oil without fear of violating U.S. sanctions regulations.
Previously, the Trump administration had issued a 30-day reprieve to refineries located in India.
Bessent characterized the “narrowly tailored, short-term measure” as a component of President Donald Trump’s “decisive steps to promote stability in global energy markets” and efforts to “keep prices low.”
According to Bessent, permitting the sale of stranded Russian oil would not yield extra financial gain for the Russian government, as the Kremlin had already levied taxes on the oil when it was extracted. As part of the strategy to halt the conflict in Ukraine, Washington has imposed sanctions on Russia’s largest oil firms, Lukoil and Rosneft. Aside from the 30-day exception for oil currently at sea, these sanctions stay in effect.
On Friday, Kremlin spokesman Dmitry Peskov stated that the action would aid in stabilizing global energy markets, noting that achieving stability is impossible “without significant volumes of Russian oil.”
However, Ukrainian President Volodymyr Zelenskyy remarked that the measure “does not help peace.”
“This unilateral easing by the U.S. could funnel roughly $10 billion to Russia for the war effort,” Zelenskyy stated. “The Kremlin uses proceeds from energy sales to buy weapons, which are subsequently used against us.”
Oil prices remained elevated following the announcement
Following the announcement, the international benchmark Brent crude price dipped briefly before climbing again, surpassing $100 to reach $103.24 per barrel by 1800 GMT (2 p.m. EDT) on Friday. This level remains significantly higher than the $72.87 price recorded on Feb. 27, the day before the war began.
The conflict has effectively blocked most tanker traffic through the Strait of Hormuz at the Persian Gulf’s entrance, a route typically used for 20% of the global oil supply. This has caused a severe energy shock to the worldwide economy and poses a threat of rising inflation globally.
“In the short term, this slightly boosts the available supply on the global market, helping to curb the current surge in oil prices,” explained Simone Tagliapietra, an energy specialist at the Brussels-based Bruegel think tank. “Consequently, the impact on prices should be moderately downward, or at least stabilizing.”
Analysts calculate that approximately 125 million barrels of Russian oil are currently in transit. This volume is equivalent to five or six days of typical shipments through the Strait of Hormuz, or slightly more than a single day of global consumption, which stands at about 101 million barrels daily.
Sanctions have reduced Russia’s oil income.
Following President Vladimir Putin’s command of a full-scale invasion of Ukraine in 2022, the European Union—formerly Moscow’s primary client—ceased purchasing Russian oil, and numerous Western buyers also avoided it.
Consequently, the oil was redirected to China and India, where it was sold at a discount. This resulted from initiatives by the U.S., the EU, and other allies of Kyiv to enforce a price cap on Russian oil via shipping and insurance firms.
Gradually, Russia managed to circumvent the cap by assembling a fleet of aging tankers with unclear ownership structures and insurance registered in nations that were not adhering to the price limit.
In addition to sanctioning Lukoil and Rosneft, Ukraine’s allies targeted an increasing number of specific vessels within Russia’s “shadow fleet.” Buyers in China and India began insisting on steeper discounts to offset the risk of sanctions violations, the difficulties involved in obscuring the oil’s origin, and the need to find alternative payment methods that bypassed banks unwilling to process transactions for sanctioned oil.
In December, Russia’s Urals crude blend traded below $40 per barrel, approximately $25 less than Brent. This caused the Kremlin’s oil income to plummet to its lowest point since the invasion began. Typically, oil and gas exports account for 20% to 30% of the federal budget.
Surging oil prices strengthen Russia’s market standing
Russian oil has appreciated in line with broader market trends and now trades above $80 per barrel. This provides a financial boost, particularly if disruptions in the Strait of Hormuz persist, sustaining high prices as Asian refineries seek alternatives to replace unavailable Middle Eastern supplies.
Data from the nonprofit Centre for Research on Energy and Clean Air (CREA) indicates that Russia’s daily oil revenue during the Iran war has averaged 14% higher than in February. Isaac Levi of the CREA reports that Russia has generated 510 million euros ($588 million) daily this month from oil and liquefied natural gas exports.
However, a significant discount to Brent remains due to sanctions. The recent U.S. action “likely narrows the Urals discount somewhat” by lowering sanctions risk, according to Tagliapietra. Yet, because the measure is limited, it “does not fundamentally change the structure of longer-term Russian oil flows or sanctions pressure.”
Former Russian Central Bank official Sergei Aleksashenko argued that the move “will not be a very significant boost” to the Russian budget, as the oil would have found purchasers regardless—especially considering the disruptions affecting the Strait of Hormuz.
Aleksashenko, who leads the economics department at the NEST Centre (founded by exiled Russian oligarch and opposition leader Mikhail Khodorkovsky), suggested that the Trump administration might have been unprepared for such a sharp price increase or a protracted conflict.
With U.S. gasoline prices climbing alongside oil, “the president should say something, that ‘I’m dealing with the problem,'” he observed. This encompasses the exemption for India and the coordinated release of 400 million barrels of strategic oil reserves with other nations.
“In my view it’s more rhetoric and perception,” he concluded.
German Chancellor Friedrich Merz stated that leaders of the Group of Seven democracies spoke with Trump this week regarding Russian oil, noting that “six members expressed a very clear view that this is not the right signal to send.”