MOSCOW (Reuters) – As talks aimed at ending the war in Ukraine continue, a potential relief in sanctions imposed on Russia, including its vast energy sector, is one of the issues on the agenda.
Oil and gas exports are a key revenue source for Moscow and the sector has been subject to Western sanctions since 2014, when Russia annexed the Crimea peninsula from Ukraine. Those got tightened significantly after Russia invaded Ukraine in 2022, with Washington announcing its harshest round of sanctions on January 10.
The following are some of the implications of their potential reversal.
RUSSIA TRADE WITH US AND EU
Russia was one of the largest suppliers of fuel oil to the United States, exporting up to 1 million metric tons (240,000 barrels per day) of fuel oil per month before the war.
The United States also imported some crude oil, mostly from Russia’s Far East. Those flows could resume if sanctions are eased.
Europe had been the main buyer of Russian oil and gas before the war. Several rounds of European Union sanctions – the latest package got extended till September – and a push to limit the bloc’s reliance on Moscow have reduced those dramatically.
According to Eurostat, the volume of “petroleum oil” imported from Russia in the fourth quarter 2024 was 10% of what it had been in the first quarter 2021.
No change in EU imports of Russian oil and gas is expected until Brussels next reviews the current sanctions package.
Yet Europe remains wary of Russia and has a broad target to halt all Russian oil and gas imports by 2027, making the return to pre-war energy supplies unlikely even if sanctions are eased. The damage to infrastructure, such as the Nord Stream gas pipelines linking Russia with Germany, three of which were blown up in 2022, would also limit future flows.
PAYMENTS
The easing of U.S. financial sanctions would have a bigger impact on Russian energy exports and revenues.
By blocking major Russian banks from the SWIFT global payments system and other financial services, the U.S. and EU sanctions brought higher fees and months of payment delays for Russian exporters forced to use alternative payment schemes. An easing of U.S. sanctions could make it easier for Russian companies to make transactions in dollars.
Russian and Chinese banks found a workaround to shorten payment periods but issues have persisted.
Payments in currencies other than the U.S. dollar are costly as Russian oil sellers have to make several currency conversions, adding to transaction fees.
Gazprom Neft and Surgutneftegaz, the third and fourth largest Russian oil companies by output, were included in the January 10 U.S. sanctions, forcing them to rely more on intermediaries.
In November, the United States also imposed sanctions on Russia’s Gazprombank, which served Gazprom’s remaining European gas customers to make payments.
Washington has since issued temporary waivers, including for Hungary, Slovakia and Turkey, to facilitate payments through the bank.
PRICES
The U.S., the EU and allies imposed a price cap of $60 per barrel on Russian oil sales. Sanctions prohibit Western insurers and shippers from facilitating trade above that level. If the U.S. stops enforcing the cap, then Russian exporters may find more maritime service providers willing to work with them.
Prices of Russia’s flagship Urals crude collapsed in early 2022 when European refiners, the main buyers, stopped imports.
Urals is valued relative to the global oil benchmark Brent crude with discounts now around $10 per barrel compared to typical pre-war levels of around $1-$2 per barrel.
Urals prices may rise if U.S. sanctions are eased but are unlikely to return to historical levels until the European sanctions are lifted.
Until then, Russia will continue to sell most of its oil to India and China, which became the top buyers after European refiners halted purchases.
SHIPPING
The U.S. Treasury has imposed sanctions on hundreds of vessels involved in Russian oil and fuel shipments, dozens of shipping operators and a number of Russian insurance companies since 2022.
The sanctions led many vessels to suspend operations. Sanctioned vessels have been docked off Russian ports, which some traders call “tankers graveyards”.
If such sanctions are lifted, Moscow would pay less for shipping of its oil thus increasing its earnings from crude sales.
GAS
There are no sanctions on imports of Russian pipeline gas, but most countries stopped buying after Russia invaded Ukraine, making Russia’s pipeline gas export monopoly Gazprom possibly the largest corporate casualty of the conflict.
U.S. sanctions also included companies supporting the development of Russia’s Arctic LNG 2 project. If the sanctions are lifted, the development of Russian LNG plants could accelerate.
(Reporting by Reuters; Editing by Nina Chestney, Simon Webb and Tomasz Janowski)
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