Time is running out, Biden is still acting, what is the real purpose? Russia suffers a "painful blow"

Time is running out for President Joe Biden's administration, but in its final days it has taken decisive action on Russian oil - President Vladimir Putin's main source of revenue.

Although Russia continues to earn billions of dollars from oil, US sanctions will cause huge damage to the country. (Source: Getty Images)

On January 10, the White House announced severe sanctions against Russia's oil industry, blacklisting nearly 200 vessels from the "dark fleet" and targeting Russian oil producers Gazprom Neft and Surgutneftegas.

According to Kpler data, sanctioned tankers account for about 42% of Russia's seaborne oil exports, mainly to China.

The West imposed a price cap on Russian oil and maritime sanctions in late 2022. However, Moscow has largely found a way around the sanctions by using various mechanisms to cap the price of a barrel of Russian oil at $60.

New developments from the White House could change the situation.

Mr. Craig Kennedy, an independent expert on Russia currently working at Harvard University, found that the latest US measure was "a painful blow" to Russia.

“That means some of the ships that were helping Moscow circumvent the oil ban will be sitting idle in ports around the world and will no longer be useful,” he said.

Meanwhile, Benjamin Hilgenstock of the Kyiv School of Economics welcomed the sanctions and said they must be maintained. "Countries need to continue to sanction the 'dark fleet' until it becomes a thing of the past," he stressed.

Crude oil prices hit their highest since August 2024 as sanctions were announced by the world's largest economy.

Why oil?

The $60/barrel price ceiling is designed to prevent Russia from profiting from oil sales and keep Russian oil flowing around the world. Western insurance and logistics services – which dominate global shipping – will not be provided to Moscow if the country’s oil is sold above $60/barrel.

Russia has gotten around this by buying hundreds of old tankers and building a “shadow fleet.” These ships have shipped oil to bulk buyers like India and China, often using opaque insurance schemes.

Six months after the price cap was imposed, Moscow's oil revenues fell sharply. However, revenues recovered shortly thereafter.

According to the Center for Research on Energy and Clean Air (CREA), Russia's crude oil export revenue increased by 6% by 2024, although export volumes decreased by 2%.

Oil revenues are important to President Vladimir Putin. Defense spending has tripled from 2021 to 2024. This year, defense spending is expected to hit a record 13.5 trillion rubles ($131 billion), up 25%.

"Oil has become extremely important to Russia. The country is under increasing pressure. With the loss of the European gas market, Moscow is focusing even more on oil," Mr. Kennedy said.

The White House has announced tough sanctions against Russia's oil industry. (Source: Bloomberg)

Targeting oil tankers

Since it became clear that Russia was using a “dark fleet” to circumvent the ban, the US has begun targeting individual tankers.

“This measure has proven to be very effective,” Mr. Kennedy said. “As soon as a ship’s name and number are blacklisted, countries like India and China tend to be reluctant to accept any Russian oil transported on those ships.”

Russia was forced to stop using those sanctioned ships.

"With just a stroke of Washington's pen, they could render dozens of $40 million oil tankers useless," said Mr. Kennedy.

The world's largest economy has stopped sanctioning individual tankers in March 2024, amid speculation that the decision could lead to an oil price shock ahead of the 2024 US presidential election.

Mr Kennedy said the large volume of Russian tankers currently subject to sanctions by the US, UK and EU would increase pressure on Russia. "It is removing critical shipping hardware that they have spent billions of dollars acquiring."

The bottom line of the sanctions

Although Russia continues to earn billions of dollars from oil, sanctions from the US will cause huge damage to the country.

"It will be very painful," said Benjamin Hilgenstock. "Sanctions will put more pressure on the ruble, cause inflation to skyrocket, and reduce budget revenues. All of this could seriously weaken the Russian economy."

If New Delhi and Beijing continue to steer clear of sanctioned tankers, Moscow will be forced to either comply with the price cap or find a way to prove that it is complying. “Either way, it’s riskier for Russia and more costly,” Kennedy said.

Meanwhile, two Chinese trade sources said Moscow's oil exports would be severely damaged by the new sanctions, which would force the country's independent refiners to cut refining output in the future.

According to many experts, the key point of the sanctions is that the reduction in Russian oil revenue will directly impact the special military campaign taking place in Ukraine.

Ukrainian President Volodymyr Zelenskyy commented on US sanctions against Russia, saying: "The less oil revenue Moscow has, the sooner peace will be restored."

However, the effectiveness of the new sanctions package depends largely on enforcement and monitoring, which is not easy when much of Russia’s oil trade has shifted to non-Western partners.

Source: https://baoquocte.vn/thoi-gian-khong-con-nhieu-ong-biden-van-hanh-dong-muc-dich-thuc-su-la-gi-nga-chiu-mot-don-dau-301084.html