Will Joe Biden's new oil sanctions really hurt Russia?

The Biden administration's time is almost up, but in its final days it has taken decisive action on Russian oil, President Vladimir Putin's key revenue source.

On January 10, the White House announced severe sanctions on Russia's oil sector, blacklisting almost 200 vessels from its so-called shadow fleet and targeting the Russian oil producers Gazprom Neft and Surgutneftegas.

Moscow has largely found ways to get around the oil-price-cap sanction — which uses various mechanisms to limit the price of a barrel of Russian oil to $60 (€58.20) — since it was introduced at the end of 2022. However, analysts are encouraged by the new developments.

Craig Kennedy, an independent Russian expert currently working at the Davis Center for Russian Studies at Harvard University, told DW that the latest measure is "a painful blow" for Russia. "It means that some of the vessels they thought they could rely on are going to have to be laid up in harbors around the world and will no longer be useful," Kennedy said.

Benjamin Hilgenstock, of the Kyiv School of Economics, told DW that the news is a "very welcome development," but said such pressure must to be maintained. "Coalition countries need to continue sanctioning shadow tankers until the shadow fleet is history," Hilgenstock said.

Crude oil prices hit their highest level since August on the news. However the Biden administration's move was reportedly motivated by an expectation that global oil markets will be oversupplied in 2025.

Oil 'immensely important'

The initial idea behind the price cap was that it could avoid market disruptions by keeping Russian oil on global markets while limiting the price the government received for the commodity. Western insurance and logistics services, which dominate global shipping, would not be provided if Russian oil was sold above the cap of $60.

Russia got around the cap by buying hundreds of aging tankers and building its so-called shadow fleet. Those ships have been transporting oil to countries buying in big quantities such as India and China, often using opaque insurance schemes.

Although Russian oil revenues dipped sharply in the six months after the cap was introduced, they have largely recovered over the past 18 months. According to the Centre for Research on Energy and Clean Air (CREA), Russian crude oil export revenues jumped 6% in 2024, despite a 2% reduction in export volumes.

Revenues from oil have been critical to President Vladimir Putin as he has dramatically ramped up military spending in an attempt to gain the upper hand on the battlefield against Ukraine. Defense spending has more than tripled since 2021 and is set to be a record 13.5 trillion ruble ($131 billion, €128 billion) in next year's budget, another huge 25% hike.

"Oil has become immensely important now for Russia," Kennedy said. "They're under increasing pressure. With the loss of the European gas markets, it's placed even greater emphasis on the necessity of getting as much out of oil as possible." The European Union has dramatically cut the amount of Russian gas it buys since the invasion in 2022.

Target the tankers

When it was apparent by late 2023 that the shadow fleet was helping Russia evade sanctions, the United States began targeting individual tankers.

Kennedy said the measure was "incredibly successful": "As soon as a ship's name and number went on this list, countries like India and China tended not to want to accept any Russian oil shipped on those ships."

Russia was forced to stop using several ships. "With a stroke of a pen in Washington, they were able to render $40 million tankers useless by the dozen," said Kennedy.

The United States stopped designating individual tankers in March, with speculation that the decision was influenced by fears that hitting Russian oil too much could lead to a price shock ahead of the US presidential election.

Although the UK and EU also began designating Russian tankers, the US decision to resume the designations is key, the experts say.

Kennedy said the sheer volume of Russian tankers now covered by US, UK and EU sanctions would ramp up pressure on Russia. "It's sidelining important transportation hardware they've put billions into acquiring."

Damaging for Moscow

Though Russia will continue making billions from oil, the latest decisions will hurt.

Hilgenstock said a combination of targeting individual tankers and clamping down on what is known as "attestation fraud" — when shippers falsely claim that Russian oil cargo is compliant with the oil cap — could seriously weaken Russia's economy.

"It would be very painful," he said. "It creates more pressures on the ruble and more inflation and cuts into budget revenues and all these things."

If India and China continue shunning sanctioned tankers, it would force Russia to either comply with the price cap or pretend to comply through falsified paperwork.

"You need to comply with the price cap, or you have to go through various contortions to try to falsify the pricing of your oil," Kennedy said. "Whichever the case, it's riskier for Russia and it's going to be costlier. So you're shaving a few dollars off the barrel for them, maybe more."

Less oil, more peace?

Though discussions about the dynamics of the price cap or insurance fraud may seem abstract, the bottom line is that successful sanctions on Russian energy directly impacts Putin's ability to fight the war on his terms.

"It undermines the confidence in Moscow that they'll be able to keep a crisis from suddenly occurring that will break this illusion that Russia is somehow resilient and able to fight as long as they need to," Kennedy said.

Ukrainian President Volodymyr Zelenskyy put it succinctly when he reacted to the news of the latest sanctions. "The less revenue Russia earns from oil," he wrote on the platform X, "the sooner peace will be restored."

Edited by: Uwe Hessler