US eases oil sanctions, boosting Russia

The US has further eased sanctions on Russian oil in an attempt to bring soaring energy prices down. The news is a huge boost to the Kremlin, just when it needed one.

The easing of sanctions on Russian oil by the US is aimed at cooling global energy prices soaring amid the Iranian conflict, but it also provides a significant boost to the Kremlin at a time when it desperately needs it.

The move, announced by US Treasury Secretary Scott Bessent on social media on Thursday, has been widely expected since the US eased sanctions on Russian oil sales to India last week. The decision is a broadening of that original waiver, which focused on cargoes of Russian oil already at sea, to include countries other than India.

Bessent said the new move was "temporary" and played down criticism that it would provide significant extra revenues to Moscow.

"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," he wrote.

The UK has said it will not follow the US in easing sanctions, while European leaders have expressed disappointment with the decision.

German Chancellor Friedrich Merz has criticized the move while French President Emmanuel Macron said high oil prices "in no way justify lifting the sanctions" on Russia. Meanwhile the EU's Economy Commissioner Valdis Dombrovskis said easing sanctions on Russia would "reinforce Russia's capacity to wage war."

Moscow has welcomed the news. "Amid the growing energy crisis, further easing of restrictions on Russian energy sources appears increasingly inevitable, despite resistance from some in the Brussels bureaucracy," Russian economic envoy Kirill Dmitriev wrote on Telegram.

What does it mean for Russia?

Isaac Levi, an analyst with the Centre for Research on Energy and Clean Air (Crea), says the easing of sanctions comes at a time when Russia's fossil fuel exports were under severe pressure due to the success of previous sanctions.

"They were starting to panic, just in advance of this Iran crisis," he told DW. "Sanctions were really biting. Now we're going to see a rollback on this."

According to the International Energy Agency, Russia's crude oil and refined product exports and revenues declined last month to their lowest since the beginning of the fullscale invasion of Ukraine over four years ago.

Ben Hilgenstock, a specialist on sanctions against Russia with the Kyiv School of Economics, says that the eve of the Iranian crisis was probably the lowest point for the Russian fossil fuels sector since 2022.

"For the first time, production volumes were dropping, export volumes were dropping and they couldn't find buyers," he told DW. "If it had lasted for a couple more months, it would have been very, very difficult for Russia. But that's like talking about a world that no longer exists."

An analysis by the Financial Times found that Russia is already earning an extra $150mn through its extra oil sales as a result of the crisis, a significant boon given how much falling fossil fuel revenues had been impacting Moscow's budgets.

Levi thinks Russia could ultimately end up earning between $5 billion and $10 billion extra a month as a result of the war in Iran and the easing of sanctions — and he says that is a conservative estimate.

"Everybody's asking the question of how long will this closure of the Hormuz Straits remain. And that has a huge impact on not only prices but on volumes."

Hilgenstock agrees that the situation will significantly boost Moscow, particularly because the price it will now receive for its oil is so much higher than it would otherwise have been. "An extra $10 billion a month in export revenues is a realistic figure and this is with a global oil price of $100," he says. "If the situation gets worse, it could go to $120 or $150 per barrel."

An unexpected boost for Russia?

Russian oil and gas revenues were struggling on multiple fronts. US, EU and UK sanctions on so-called shadow fleet vessels had chipped away at Moscow's capacity to send its oil around the world while US sanctions on Lukoil and Rosneft had had a major impact, with Indian refiners increasingly reluctant to purchase Russian oil. 

China, India and Turkey have been by far the largest buyers of Russian oil since 2022, together accounting for around 93% of Russian sales over that period. However, India's gradual pivot away from Russian oil was starting to take hold.

New Delhi's imports of Russian crude oil dropped by 19% in February according to Crea, continuing a decline which has been noticeable for several months now. The US-India trade agreement struck last month was reportedly contingent on India further reducing its imports.

That was causing Russia difficulty in finding new buyers, meaning the discount for Russia oil — that's the difference between the price it received on global markets compared with non-sanctioned oil — was widening.

What will the easing of sanctions mean for global supply?

As with the original easing of sanctions related to Indian purchases of Russian oil last week, the waiver refers to barrels of oil already at sea. It allows for the sale of Russian crude oil or petroleum products until April 11, as long as the products were loaded before March 12.

Isaac Levi says that although Russia was receiving less and less money for its oil, it was still producing at high volumes. That means a lot of its oil is already at sea on tankers and is now being offloaded at Indian ports and, as a result of the latest waiver, at other ports across Asia.

The ongoing disruption in the Strait of Hormuz has primarily affected oil export flows to Asian countries. An estimated 89% of crude oil shipped through the strait is destined for countries in East and South Asia.

However, Hilgenstock points out that Moscow is unlikely to ramp up supply, meaning oil prices are unlikely to be majorly impacted until the disruption at the Strait of Hormuz subsides.

"I don't think that's really going to solve any of the problems of the global market," he says. "There's at least 10 million barrels missing on the market or more because of the Strait of Hormuz situation. 900,000 barrels a day from Russia is not going to fix this problem."

If prices continue to rise, what other sanctions could be lifted?

The easing of Russian sanctions in response to the oil price crisis has raised doubts about US willingness to maintain pressure on Moscow.

Among Isaac Levi's concerns is that the US might lift some of its most effective energy sanctions, including on Russia's major LNG (Liquefied Natural Gas) installation Arctic LNG-2. "If the US removes sanctions on this, it could be significant and help Putin increase Russia's struggling gas export revenues," he said.

Hilgenstock said that removing sanctions on Russian oil already at sea was "low-hanging fruit" and that the obvious next step would be to remove sanctions on Russian oil companies such as Lukoil and Rosneft.

He also dismissed US claims that the lifting of sanctions would not significantly benefit the Kremlin. "Of course, they have to sell this as not taking too much pressure off Russia," he said. "It's disingenuous."