(Bloomberg) — Oil surged after the US announced sanctions on Russia’s biggest producers, as President Donald Trump ramps up pressure on his counterpart Vladimir Putin to negotiate an end to the war in Ukraine.
Brent advanced as much as 3% to trade above $64 a barrel and West Texas Intermediate rallied to near $60 after the US blacklisted state-run giant Rosneft PJSC and Lukoil PJSC, citing Moscow’s lack of commitment to peace in Ukraine. Trump is also seeking to squeeze Russia’s key oil buyers — India and China.
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The sanctions mark a U-turn for Trump, who had announced last week he would meet Putin in the coming weeks and said repeatedly he believed Russia wanted to end the war. But on Tuesday, he said he didn’t want a wasted meeting.
President Donald Trump says the US is sanctioning Russia’s biggest oil producers because of the country’s lack of a serious commitment to end the war in Ukraine.Source: Bloomberg
The penalties “mark a shift in President Trump’s approach to Russia and open the door for tougher sanctions down the road, which could ultimately impact Russian oil flows,” said Warren Patterson, the head of commodities strategy for ING Groep NV in Singapore. “The uncertainty is how effective these sanctions will be and what impact they actually have” on exports, he added.
Following the measures, Trump said he planned to speak to Chinese President Xi Jinping about the nation’s buying of Russian oil at a planned meeting next week in South Korea. On Tuesday, the US leader said India’s Prime Minister Narendra Modi assured him that the country would wind down its purchases.
The two nations became the biggest buyers of Russian oil following the war in Ukraine as other countries shunned Moscow for its invasion. Trump hit India with crushing tariffs for the trade, but has spared China from any action. Last week, the UK slapped sanctions on two Chinese energy firms that handle Russian energy, along with penalties on Rosneft and Lukoil.
“This is definitely one of the more meaningful measures the US has taken, but I think it will be blunted by the widespread use of illicit financial networks,” said Rachel Ziemba, an analyst at the Center for a New American Security in Washington. China and India will likely buy a bit less, but there’s not going to be sudden stop of Russian oil, she added.
Rosneft, headed by Putin’s close ally Igor Sechin, and privately held Lukoil are the two largest Russian oil producers, jointly accounting for nearly a half of the nation’s total exports, according to Bloomberg estimates. Taxes from the oil and gas industries account for about a quarter of the federal budget.