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US Sanctions Rosneft and Lukoil in Bid For Ukraine Talks

(Bloomberg) -- The Trump administration announced sanctions on Russia’s biggest oil producers, rolling out its first major package of financial punishments on President Vladimir Putin’s economy as part of a fresh push to end to the war in Ukraine.

The Treasury Department blacklisted state-run oil giant Rosneft PJSC and Lukoil PJSC because of “Russia’s lack of serious commitment to a peace process to end the war in Ukraine,” according to a statement Wednesday.

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The decision to sanction Rosneft and Lukoil marked a U-turn for President Donald Trump, who had held off on major sanctions and announced last week he would meet Putin in the coming weeks. In the last day, Trump had indicated a change of heart, saying he didn’t want a wasted meeting.

Oil prices surged in thin post-settlement trading on news of the fresh sanctions, with international benchmark Brent surging 5%. The renewed threat of a disruption to Russian oil supplies is helping support a global oil market that has been bracing for a long-anticipated glut.

State-controlled Rosneft, headed by Putin’s close ally Igor Sechin, and privately held Lukoil are the two largest Russian oil producers, jointly accounting for nearly half of the nation’s total crude-oil exports, according to Bloomberg estimates. Taxes from the oil and gas industries account for about a quarter of the federal budget.

“I just felt it was time,” Trump said in a meeting with NATO Secretary General Mark Rutte in the Oval Office. He said he hoped “they won’t be on for long” and he hoped the war would be settled.

“The only thing I can say is, every time I speak with Vladimir, I have good conversations, and then they just don’t go anywhere,” Trump said. He said a meeting with the Russian leader will take place in the future.

Before Wednesday, Trump had repeatedly backed away from threats of tariffs, sanctions and other punishments against Russia. On July 29, he gave Russia 10 days to reach a truce with Ukraine. But the Aug. 8 deadline came and went without further action by the US leader. He then met Putin in Alaska but the meeting produced no progress on the war.

Wednesday’s move was one former President Joe Biden considered making in the waning days of his presidency. But he resisted over fears of spooking global energy markets and spiking the price of oil. Given Trump’s own focus on keeping gasoline prices low, it marks a major gamble and signals his patience with Putin may finally be running out. In the Oval Office meeting, he said he believed gas would go to $2 a gallon.

Trump had earlier equivocated on a Senate plan to ramp up sanctions on Russia and declined to commit to sending Tomahawk missiles to Ukraine. And despite his downbeat tone toward Putin, Trump signaled Wednesday he was unlikely to provide Ukraine with Tomahawks, saying Tomahawks can only be effective if the US fires them, and it’s not going to do so.

It’s unclear whether the latest move will seriously impact Putin’s calculus on the war. The Biden administration imposed wave after wave of sanctions against Russia after its invasion in 2022, damaging the Russian economy but never deterring Putin from pressing ahead.

Thomas Graham, a fellow at the Council on Foreign Relations, said the latest sanctions may ultimately amount to less than Trump hopes.

“If the White House thinks this is going to lead to radical change in the Kremlin’s conduct or Putin’s policy, they’re deluding themselves — and I don’t think that they actually believe that,” Graham said.

“Sanctions work slowly and the Kremlin has been very good at circumventing these kinds of sanctions,” he said.

Ukraine welcomed the move.

“For the first time during the tenure of the 47th President of the United States, Washington has decided to impose full blocking sanctions against Russian energy companies,” Ambassador Olga Stefanishyna said in a statement. She said Ukraine believes “peace is only possible through strength and by exerting pressure on the aggressor using all available international instruments.”

In Ukraine earlier Wednesday, Russia launched multiple drone and missile strikes, killing at least seven civilians including children in the early hours of Wednesday. Russia continues to ramp up its attacks on Ukraine’s energy infrastructure with Kyiv attempting to respond by targeting refineries.

The UK sanctioned Rosneft and Lukoil a week ago. On Thursday, the European Union is set to announce a new sanctions package that will include an import ban on liquefied natural gas. The package aims to further starve Moscow of energy revenue and pressure Putin into negotiations.

The US and its Group of Seven allies opted to impose a price cap on Russia’s oil exports in 2022 in part because of the concerns that crude prices would spike. Brent futures touched $139 a barrel in the days after the war erupted, but are trading far lower today.

--With assistance from Devika Krishna Kumar and Natalia Drozdiak.

(Updates with additional quote from Trump, other details throughout.)