The United States has sanctioned Russia’s two largest oil companies, which account for more than half of Russia’s crude oil exports.
Any financial institution that helps facilitate transactions for these companies will now think again about doing so, says Elina Ribakova, a senior fellow at the Peterson Institute for International Economics, a think tank based in Washington, DC.
If a bank is caught doing business with sanctioned companies, “they will lose access to US markets, the US dollar and US payments systems,” Ribakova told CNN. “So effectively they will cease to exist as a bank.”
Although Russia may try to disguise the fact that oil is coming from one of the sanctioned companies, it will still have to cut the price of its exports to compensate buyers for the risk of doing business with them.
Ribakova said that India – a major buyer of Russian oil since 2022 – will now be asking of Russia: “If I can get cheap oil from Saudi Arabia and the UAE, why do I need to bother with you? You’re toxic. It’s hard to make transactions with you.” To stop buyers looking elsewhere, Russia will have to sell at a discount, she explained.
The need for that discount could erode, however, if the US shows it is not “serious” about enforcing its sanctions.
“If they don’t do any analysis and enforcement in the next two months, the discount will become very small again. It’s like if I tell you to pay 60% tax, but then don’t check your tax records. At some point, you won’t pay that tax anymore,” she said.