The U.S. Department of Treasury temporarily lifted sanctions on Russian oil Thursday in an effort to dampen the impact of high oil prices amid the war in Iran. The move has drawn vocal critics who say it will help Russia without significantly lowering oil prices, which sat above $100 per barrel on Friday.
The U.S. is lifting sanctions on Russian oil already at sea for 30 days until April 11. This comes a week after the Treasury issued a narrower exemption for India to purchase sanctioned Russian oil.
In a social media post, Treasury Secretary Scott Bessent said, “this narrowly tailored, short-term measure applies only to oil already in transit and will not provide significant financial benefit to the Russian government, which derives the majority of its energy revenue from taxes assessed at the point of extraction.”
While revenue flowing directly to the Russian government does come from taxes, the Kremlin also holds major ownership stakes in the country’s energy industry, including its largest oil company Rosneft. As Iran disrupts oil traffic through the Strait of Hormuz and the Ukraine war continues in the background, the lifting of sanctions marks a significant departure from U.S. policy over the past several years.
How did the Russian oil sanctions work?
The global economy was still trying to bounce back from the height of the COVID-19 pandemic when Russia invaded Ukraine in 2022. Oil prices were already relatively high — around $80 per barrel — before the first shots were fired.
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Catherine Wolfram, a professor of energy economics at the Massachusetts Institute of Technology, was working for the U.S. Treasury at the time as a deputy assistant secretary. She would become one of the architects of U.S. sanctions on Russian oil.
“We were trying to prevent Russia from profiting from a war that it created,” said Wolfram, in an interview with Straight Arrow News. “And we wanted to prevent world oil prices from going up even further.”
Wolfram said the Treasury Department worried a full embargo on Russian oil would cause prices to skyrocket, hurting the global economy. Instead, they resorted to a price cap that only allowed Russian oil to be sold at a steep discount compared with global prices. This method was designed to “take revenue away but keep barrels on the market,” Wolfram said.
Enforcement was achieved through U.S. and European pressure on the shipping industry to prevent companies from transporting Russian oil being sold above the cap. However, a “shadow fleet” of tankers has allowed Russia to export some oil at full price.
As recently as October, the Trump administration issued new sanctions on Russia’s leading oil companies.
Has lifting sanctions shifted oil markets?
The temporary removal of sanctions on Russian crude has not resulted in a significant change in the price of oil. The main global oil price benchmark, Brent, was trading higher on Friday than before Thursday’s announcement. By Friday afternoon, a barrel of oil cost more than $102 — among the highest prices seen since 2022.
“The market kind of shrugged off the announcement,” Wolfram told SAN. Low oil prices over the past year had strained Russia’s budget, but now Wolfram said the Trump administration “gave all of those gains away.”
Russian officials have said about 100 million barrels of the country’s oil are currently at sea. The value of Russian crude, known as Urals, has already increased by more than $30 per barrel since the start of the war in Iran, yielding an extra $150 million per day, according to reporting in The New York Times.
Edward Fishman, a senior fellow at the Council on Foreign Relations, told the Times, “I do worry that this is effectively the destruction of the oil sanctions on Russia,” because the temporary sanctions relief could become permanent.
How are US and global elected officials reacting?
Around the world, the temporary end of Russian oil sanctions was met with alarm.
President of the European Council António Costa called America’s decision “very concerning” and said it would impact European security, Euro News reports.
“Any step that would enable Russia to increase its revenues from oil sales would be problematic in view of the larger goals that we have regarding crippling Russia’s war capabilities against Ukraine,” he said.
French President Emmanuel Macron criticized the decision, saying Iran’s closure of the Strait of Hormuz was “in no way” a reason to lift sanctions, The Moscow Times reported.
Democrats in the U.S. largely criticized India’s exemption from Russian oil sanctions. On Tuesday, Democrats signed a letter calling on Bessent to testify before a Senate committee.
Sen. Andy Kim, D-NJ, reacted on social media: “Putin and Xi are the happiest people on Earth.”
The administration also faces criticism from the Republican side. Sen. Chuck Grassley, R-Iowa, called ending sanctions the “wrong move” that “prolongs suffering in Ukraine.”
