Cutting Off The Tail Piece By Piece: As a result of Trump's new sanctions, oil and gas exports may decline by more than 25% in 2026, and the budget could lose more than 1 trillion roubles

The introduction of sanctions against Russia’s largest oil companies, Rosneft and Lukoil, has marked a turning point in Donald Trump’s policy. Having moved away from the idea of tariff-based pressure, he has returned to the sanctions logic typical of Joe Biden’s administration. This strategy appears less ambitious, but more realistic.

The current sanctions policy is not designed to block the sanctioned country's supplies to markets all at once. This could lead to their sharp destabilisation. Rather, it follows the logic of ‘cutting off the tail piece by piece’.

At the first stage of sanctions, Russia lost its premium markets in the US and Europe and was forced to sell oil at a discount in Asian markets. By 2025, it had begun gradually losing volumes of oil and petroleum product exports. At the same time, Biden in January 2025 had not yet dared to impose sanctions on Rosneft and Lukoil, limiting himself to two less significant Russian oil companies.

From this perspective, Trump’s current sanctions look like yet another step in the process of 'cutting off the tail.' A surplus is building up in the oil market, and even if half of Russia’s oil exports to China, India and Turkey were removed from the market, it would not lead to destabilisation.

The most vulnerable area after the introduction of sanctions is Russia’s supplies to India, which appears ready to trade them away in exchange for more favourable terms in a trade deal with the United States. Here, a significant loss of Russia’s oil export volumes can be expected. However, Turkey will also be forced to demonstrate at least partial compliance with American sanctions.

More than 2 million barrels per day of Russian oil and petroleum product exports, or about 30% of Russia’s total oil exports, are now under threat from the sanctions. In 2024, they accounted for roughly 25% of the total value of Russia’s oil and gas exports. A more moderate scenario, however, assumes that Russia will manage to alter logistics and redirect some of its 'toxic' oil elsewhere. Still, overall losses will depend both on the reduction in export volumes and the larger discounts applied to the oil that can still find buyers.

As a result, oil and gas export revenues may fall by 15% in 2026 due to the sanctions factor alone, with the price factor contributing at least another 10% decline. Consequently, oil and gas budget revenues for 2026 could be 1–1.2 trillion roubles below the planned level.

Return to the sanctions track

By imposing sanctions on Rosneft and Lukoil, which, according to research company Kpler, account for more than half of Russia’s oil production and exports — Donald Trump has signalled a major shift in his policy of economic pressure on Russia. Since Trump began threatening Moscow with such measures, the focus had consistently been on tariff policy. For instance, working with the Trump administration, Senator Lindsey Graham drafted a bill imposing 500% tariffs on buyers of Russian oil. Trump portrayed tariff measures as a stronger weapon, contrasting them with what he called the Biden administration’s 'ineffectual' sanctions policy.

As recently as last summer, Trump applied tariffs against India, adding 25% to the overall tariff on Indian goods as punishment for purchasing Russian oil. However, firstly, this has not yet led to a significant reduction in India’s imports (in August, September and October, according to the Finnish Centre for Energy and Clean Air Research (CREA), daily oil and petroleum product exports remained at about 95% of July levels). Secondly, analysts view the tariff as part of broader negotiations over a US–India trade agreement, which so far have shown little progress (→ Re:Russia: Surplus Oil).

The measures introduced last week, however, effectively mark a return to a traditional sanctions policy. The US Treasury Department has placed Rosneft and Lukoil to the SDN blacklist, which not only freezes the assets of Russia's largest oil producers in the US (where, according to estimates, around 200 franchised petrol stations are believed to operate in New Jersey, Pennsylvania and New York State), but also poses a threat of secondary sanctions for third-country companies that continue doing business with them. In January 2025, shortly before the end of Biden’s term, similar sanctions were imposed on Gazprom Neft and Surgutneftegaz, Russia’s third- and fourth-largest oil producers.

Tariff measures are a form of 'indiscriminate nuclear weapon,' aimed at forcing a complete halt in the sanctioned country’s oil purchases. Yet Biden’s administration considered a total ban on Russian oil unrealistic. Before the war, Russia supplied the global market with 4.7 million barrels per day (mbpd) of crude oil and 2.9 mbpd of petroleum products(Central Bank data, with OPEC estimates slightly lower) to the world market, accounting for more than 10% of total world exports of these commodities. Removing them from the market would have caused a global crisis due to fuel shortages and a massive price spike. Moreover, tariff measures also inflict considerable damage on the country imposing them. For these reasons, experts generally viewed Trump’s and Graham’s threats with scepticism. The sanctions policy of the previous administration, by contrast, aimed not to exclude Russian raw materials from the market, but to reduce the income Russia derived from them.

Thus, two key aspects stand out in Trump’s decision. First, the return to the previous sanctions policy marks a shift towards a pragmatic approach that pursues more limited but more realistic goals. Second, it is worth noting that the Biden administration imposed sanctions only in 2025, and only on two major Russian oil companies, but not the two largest ones. The reason for this delay and selectivity was not hypocrisy or oversight, but fear of destabilising the global market by acting too sharply against such large volumes of Russian oil. This suggests, among other things, that the Biden administration considered such measures sufficiently effective. The Trump administration now believes that the time has come to apply them, as they are unlikely to trigger major market destabilisation.

The strategy of ‘cutting off the tail piece by piece’

To understand how sanctions work in today’s global markets, particularly against countries that are major suppliers, it is important to remember that these markets are now highly optimised. This means that suppliers have a fairly accurate understanding of how much of a given product will be consumed in the coming year and how much production makes economic sense. In such a situation, it is practically impossible to introduce blocking sanctions aimed at excluding a country's supplies from the general turnover: this leads to shortages and price spikes that destabilise the global economy, as happened in 2022. For the situation to change, that is, for the sanctioned country’s goods to be phased out of the market, other suppliers must believe that space will open up, invest in new capacity, increase production, and compensate for the missing volumes. Therefore, in today’s conditions, the realistic goal of sanctions policy is not the immediate removal of the sanctioned player from the market, but rather a strategy of ‘cutting off the tail piece by piece.’

As we have repeatedly shown in our reviews, during the initial stages of sanctions Russia gradually (and not completely) lost access to the premium markets of Europe and the United States (→ Re:Russia: Turkish Window; Re:Russia: Forward into The Past). As a result of this 'reorientation of Russian exports eastward', Russia was forced to supply the same raw materials to China, India, Turkey and other countries, not at a premium, but at a discount to global prices. Some of these countries then re-exported those goods, or similar domestic products, to premium markets.

Importers of Russian oil, 2022–2025, %

In addition, various sanctions instruments (price caps, combating the shadow fleet, the threat of secondary sanctions) put pressure on buyers and created problems in supply logistics, which increased Russian costs and price discounts. But most importantly, it signalled to buyers that they might have to abandon Russian products at some point, and to suppliers that they had an opportunity to squeeze Russia out of at least part of its market share.

It should be noted that, in addition to the losses from price differentials, which were expected to amount to at least 10% of potential revenue, Russia had already begun to lose market share in 2024–2025. According to OPEC, while oil exports in 2024 remained at the 2021 level, exports of petroleum products fell by 10%. According to somewhat contradictory data from the International Energy Agency (IEA), oil exports fell by 14% in the first half of 2025 compared to 2021 levels. And according to CREA, Russia’s average daily exports in the first nine months of 2025 amounted to 92% of the 2022 level for crude oil and 88% for petroleum products. All estimates point to Russia having reduced its combined oil and petroleum product exports by 10–15% compared with 2021 during the first half of 2025. That may not seem dramatic, but when one adds the losses from discounts, the total becomes quite significant.

From this perspective, Trump’s new sanctions against Rosneft and Lukoil should not be seen as yet another attempt to deliver a crushing blow to Russian oil after a series of previous failed efforts, but rather as another step in the process of 'cutting off the tail'.

According to the IEA's October forecast, global oil supply will increase by 3 million barrels per day (mbpd) in 2025 and by another 2.4 mbpd in 2026, as OPEC+ countries ramp up production more rapidly; a decision on the next increase is expected this Sunday, Reuters sources report. Meanwhile, the IEA projects that demand will grow by only around 0.7 mbpd this year and next. As a result, the oil surplus will amount to 2.35 mbpd in 2025 and 4 mbpd in 2026. More conservative OPEC analysts expect demand to grow almost twice as fast, with slower output increases among non-OPEC producers. In their October forecast, production in 2026 roughly matches demand, though as recently as September, they were predicting a deficit of 0.7 mbpd. Thus, they too are recording a shift of the market towards surplus. A Reuters survey of analysts offers a compromise scenario: demand rising by 0.89 mbpd and oversupply reaching 1.63 mbpd.

The oil surplus forecast by the IEA for 2026 roughly equals the volume of Russia’s exports to its three largest customers – China, India and Turkey – which totalled 3.86 mbpd in the first half of 2025, according to the US Department of Energy (about 90% of total Russian oil exports). The more moderate, consensus market forecast corresponds roughly to Russia’s average exports to India (1.6 mbpd). This means that if India were to fully replace Russian oil with Middle Eastern and US supplies (Reliance Industries, the country’s largest refinery owner, has already purchased millions of barrels from these regions since the sanctions were introduced), and if Russia fails to find new buyers, the global market would remain balanced. And if the supply–demand balance turns out to be closer to the IEA’s estimates, the market would not be shaken even if Turkey and China were also to reduce their Russian imports under sanctions pressure.

Markets appear confident in the potential to replace Russian oil. Following news of US sanctions against Rosneft and Lukoil, which are set to take effect on 21 November, the benchmark Brent crude price rose by only 5.4%, to $66 per barrel, and fell slightly a week later (to $65.35 as of 31 October). President Vladimir Putin also acknowledged that 'some portion' of Russian oil and petroleum products could indeed be replaced on the world market, although this would take time. Russia’s OPEC+ partners, however, view the situation with open optimism: Kuwait’s oil minister, Tariq Al-Rumi stated that OPEC would be ready to compensate for any shortfall in oil supply, as cartel members are still restraining output (as of March 2025, the group’s total cuts was estimated at 5.85 mbd, less than half of which had been reversed by the end of September).

Scenarios of consequences and range of losses

The growing oil surplus is putting downward pressure on prices. If Russia’s exports remain unchanged, prices will fall further, reducing revenues for all exporters in proportion to their market shares. If, however, some portion of Russian oil is forcibly removed from the market, supply and demand will rebalance, prices will stay at the current comfortable level ($60–65 per barrel), and the costs of market adjustment will fall mainly on Russia. This scenario suits both American and Middle Eastern producers, the former to prevent prices from dropping too far, and the latter because they will largely replace Russian supplies. All this creates favourable conditions for the sanctions’ impact on Russian exporters to be quite substantial.

Between January–September 2025, according to the IEA, Beijing accounted for 44% of Russia’s oil exports (2.1 mbpd), India for 40% (1.9 mbpd), and Turkey purchased 0.28 mbd with a significant portion of Russian petroleum products. The day after the US sanctions were imposed, Reuters reported that Chinese state-owned companies PetroChina, Sinopec, CNOOC and Zhenhua Oil had suspended purchases of Russian oil transported by sea, at least for the time being, in order to assess the risks. Unipec, Sinopec's trading arm, had stopped purchases even earlier, after Rosneft and Lukoil were hit with UK sanctions on 15 October.

However, China’s state-owned firms, which tend to comply with international sanctions due to their contracts with Western partners and foreign shareholders, account for no more than a third of seaborne Russian oil shipments to China (0.25–0.5 mbpd out of roughly 1.4 mbpd, according to Reuters). Independent refiners are also likely to pause purchases to assess the sanctions’ impact, though traders say they will aim to resume them. Another approximately 0.8 mbpd, which is supplied by pipeline under long-term contracts between Rosneft and PetroChina, is unlikely to be affected, according to most analysts. In general, Beijing is not overly concerned about US sanctions: nearly all sanctioned Iranian oil continues to flow to China, which, as The Wall Street Journal has reported, has created a special ecosystem for buying, transporting, and refining such oil, insulated from the Western financial system. Overall, losses for Russia in this direction are possible but unlikely to be significant. However, buyers will use the temporary pause and added risks to demand deeper discounts.

India, by contrast, is far more vulnerable to American sanctions. Keen to sign a trade agreement with the US, it stands to gain more from favourable trade terms than from the margins on discounted Russian oil, as we have previously discussed (→ Re:Russia: Surplus Oil). IImmediately after the new sanctions were introduced, senior executives at Indian refineries, heavily reliant on Western financing, admitted in a conversation with Bloomberg that purchases of Russian oil could fall to zero. Reliance Industries, which signed a 10-year contract with Rosneft to supply about 0.5 mbpd in December 2024 , said it would ‘review’ its imports in line with the Indian government's recommendations. A source familiar with the negotiations told the Financial Times that the authorities had asked refiners to reduce imports of Russian oil. Still, not all Russian oil is expected to be excluded: on 31 October it emerged that Indian Oil Corp, owner of one of the country’s largest refineries, had bought five cargoes totalling about 3.5 million barrels from undisclosed intermediaries for December delivery. Though this is only about 5% of India’s typical monthly imports, it sets an important precedent.

Since the start of the war in Ukraine, Turkey has not only risen from 14th to third place in terms of Russian oil consumption, but has also become the largest buyer of Russian oil products and a hub for their delivery to the EU and other Western countries (→ Re:Russia: Turkish Window). Ankara may, at least temporarily, suspend its purchases of Russian oil. This already happened in February 2025, when the country’s largest refining group, Tüpraş, which had imported around 0.225 mbpd from Russia the previous year, suspended its supplies due to sanctions imposed in the last month of Biden's presidency. But in April, the company resumed purchases of Russian oil after it fell sharply in price. This time, however, the losses for Russia could be more serious. During President Recep Tayyip Erdoğan’s visit to the US, one of whose main goals was to lift American restrictions on arms sales to Turkey, including F-35 fighter jets. Trump urged him to stop buying Russian oil, later commenting: 'He needs certain things, and we need certain things. And we’ll come to an arrangement.' Russia therefore faces likely losses in the Turkish market, especially as the window for re-exporting Russian petroleum products to Europe is closing.

At present, by our estimates, more than 2 mbpd of Russia’s oil and petroleum product exports, roughly 30% of the total, are under threat from sanctions. This includes most supplies to India, state-company shipments to China, and part of the Turkish trade. In 2024, these accounted for around 25% of the total value of Russia’s oil and gas exports, according to our calculations. This can be regarded as the upper limit of potential losses.

Russia will be able to redirect and place a significant portion of these supplies by altering its logistics, but finding alternative buyers in an oil-saturated market under intense political pressure will be difficult. According to Kpler, Gazprom Neft and Surgutneftegaz, which were hit by US sanctions at the beginning of the year, were forced to cut crude exports sharply (by two to three times) from the second quarter onwards. The companies may have redirected some production to the domestic market or sold it through intermediary traders. The first option will no longer work: the domestic market does not need that much oil. Kpler analysts believe the sanctions may force Rosneft and Lukoil to store some of their output, on land or in floating storage, and seek buyers willing to risk secondary sanctions in exchange for steep discounts.

The ‘light’ scenario was described by Carnegie Eurasia oil and gas analyst Sergei Vakulenko. He estimates that Russia could lose 0.7 mbpd of oil exports, equivalent to about 15% of its oil revenue. Based on the 2024 structure of total oil and gas export income, this would mean a reduction of roughly 12%. In our view, losses under a 'moderate' scenario will include both the direct losses from reduced oil exports (shipments that cannot be placed in an oversupplied market) and those from increased discounts, which are likely to rise again to the substantial levels seen in 2022–2023 (15–25% below benchmark prices). In that case, the losses would amount to around 18–19% of oil exports, or about 15–16% of total oil and gas exports. Taking into account the price factor – a fall in oil prices from $68 per barrel in 2025 to $60 or slightly lower the following year – Russia’s total oil and gas export revenues could decline by 25–30%.

Accordingly, this will lead to a drop in oil and gas revenues for the budget. According to the latest data from the Ministry of Finance, their volume for January–September 2025 fell by 20% compared with the same period last year. The target for oil and gas revenues was cut from 10.94 trillion roubles to 8.32 trillion, which is a reduction of almost 25% once the price factor is taken into account. For next year, the government had planned to collect slightly more – 8.92 trillion. However, if the 'moderate' scenario of reduced Russian export volumes as a result of the new sanctions materialises, these revenues could be at least 15% lower due to the sanctions effect alone. In that case, the shortfall would amount to roughly 1.2 trillion roubles.

It should be noted, however, that the actual losses will largely depend on the level of political pressure maintained, in particular, on how credible the threat of secondary sanctions proves to be for market participants, and on how consistent the White House’s policy remains. At the same time, even if most of Russia’s oil remains on the market, the likely consequence of this scenario will be a further decline in prices under the pressure of a growing oil surplus.