Is it in Trump's interest to implement latest oil sanctions against Russia?

The recently imposed US sanctions on Russian oil supply hold little if any advantage for President-elect Donald Trump. 

Last week, the US imposed further sanctions on Russia’s shadow fleet, carrying oil to different countries, crippling supply and driving up global prices. 

The sanctions were approved by the incumbent US President Joe Biden ahead of Trump’s inauguration day on January 20. 

However, rising oil prices are expected to have an effect on domestic gasoline rates in the US. This could create an issue for the Trump administration as gasoline is a sensitive commodity in the US. 

Trump may not implement new sanctions

“It is by no means certain that a new US administration will implement the sanctions of the previous administration one-to-one,” Carsten Fritsch, commodity analyst at Commerzbank AG, said. 

Higher oil and gasoline prices in the US could cost Trump support, according to experts. 

Fritsch said:

Brent crude oil prices have so far climbed more than $6 per barrel since the beginning of the year. 

Lower exports from Russia had already been adding to the bullishness. In December, Russian oil exports to India and China fell.

Additionally, the new sanctions have already started to impact exports further.

“Buyers of Russian oil have been looking at alternatives, in case these sanctions turn out to be disruptive,” Warren Patterson, head of commodities strategy at ING Group, said in a note. 

“The uncertainty over the impact means that oil prices will likely be better supported than initially expected through the first quarter of the year,” Patterson added. 

Trump’s other option

With Trump taking office at White House next week, the uncertainty in the financial and commodity markets is likely to keep traders on their toes. 

Previously, the Republican president-elect had expressed his desire to negotiate with Russia and Ukraine to end a near-three-year conflict. 

The newly imposed sanctions on Russia by the Biden administration had been placed to halt the Kremlin's war efforts against Ukraine.

These sanctions could severely cripple Russia’s revenues from oil exports. The country is very much dependent on income from its oil sector. 

“Trump may also use the new US sanctions as leverage in possible negotiations with Russian President Vladimir Putin to end the war in Ukraine,” Commerzbank’s Fritsch noted. 

This would be a slightly trickier path as Trump is also likely to pursue stricter compliance with sanctions against Iran’s oil exports. 

“We had expected that tighter US sanctions against Iran and Venezuela would lead to a decline in oil supply from these countries and that the oversupply that was otherwise looming on the oil market would therefore not materialise,” Fritsch said.  

US sanctions on Russian oil

The latest US sanctions target Russian oil majors such as Gazprom Neft and Surgutneftegas. 

These sanctions also target a further 183 vessels, which are mostly part of the shadow fleet, while several traders facilitating the trade of Russian oil have also been targeted. 

The addition of the 183 vessels more than doubled the number of oil tankers affected by sanctions to 270, according to Commerzbank. 

Insurance companies and traders associated with the transport of Russian oil were also added to the sanctions list. 

According to Bloomberg, the two companies mentioned above accounted for almost 1 million barrels of Russia’s daily oil exports in the first 10 months of 2024 or about 30% of the country’s seaborne crude exports. 

OPEC’s spare capacity

As the sanctions take their toll on global oil supply, it should be kept in mind that the Organization of the Petroleum Exporting Countries and its allies are sitting on a considerable amount of spare oil output capacity. 

The cartel had been adhering to steep production cuts over the last couple of years to boost oil prices and stabilise the market in the absence of steady demand growth from China, the world’s largest importer of oil. 

OPEC is currently scheduled to unwind some of its voluntary production cuts of 2.2 million barrels per day from April. 

On top of this, the cartel and its allies are also adhering to cuts, amounting to 3.65 million barrels a day, which has been extended till the end of 2026. 

This means that OPEC+ is currently withholding around 6 million barrels per day of oil from the market. 

“It should be borne in mind that OPEC+ could turn up the oil tap at prices above USD 80 per barrel. Thanks to voluntary production cuts of almost 6 million barrels per day, spare production capacity is more than ample,” Fritsch added.