US, UK, and EU Sanctions Threaten Russian Oil Revenues and Military Funding

New sanctions by the United States, the United Kingdom, and the European Union against the Russian oil companies “Rosneft” and “Lukoil” could deprive the Kremlin of up to $5.5 billion in monthly revenues and significantly affect its military potential.

This was stated in an interview by Vladyslav Vlasyuk, the Ukrainian president’s envoy on sanctions policy, to those directly involved in shaping sanctions policy.

The impact of sanctions on Russia’s economy and defense

Sanctions against “Rosneft” and “Lukoil” were first imposed by Great Britain, a week ahead of the Americans. The Americans then imposed restrictions on these companies and 32 subsidiary companies, since they involve vertically integrated structures. This poses a threat to about 60–70% of Russia’s oil exports to India and China. If the sanctions are observed by at least 80%, in dollar terms this would amount to roughly $5.5 billion in monthly losses for the Russian budget

According to Vlasyuk, despite the fact that the American sanctions will take effect on November 20, their impact is already being felt.

“Oil purchase contracts are signed in advance. Since last week we have seen futures contracting for future oil deliveries fall by almost 20%. And there are already reports that buyers in China have sharply lost interest in Russian oil. So the effect is already there,” he explained.

Oil purchase contracts are signed in advance. Since last week we have seen futures contracting for future oil deliveries fall by almost 20%. And there are already reports that buyers in China have sharply lost interest in Russian oil. So the effect is already there

The envoy noted that any attempts by Russia to bypass the restrictions in advance will not yield the expected result, as the West acts in a coordinated manner.

Redirecting exports through another legal entity – with a high degree of probability this would mean sanctioning that company as well. After all, if the United States, Europeans, and the British have already targeted Rosneft and Lukoil with sanctions, then listing any other exporter in the blacklist, in principle, will not be difficult to decide

He also noted that even China will not be able to completely ignore these restrictions.

The issue of oil supply, oil export, extraction, and insurance of shipments in modern conditions cannot be reduced solely to the relations between Russia and China. It cannot be like that in the world of oil trading. There is no room for isolationism. I think the effect will be sufficient

According to Vlasyuk, restrictions against oil companies will also affect funding for Russia’s defense industry.

This will impact Russia’s ability to pay for weapons. We must not forget that there are issues of reducing revenues to the Russian budget, and there are also issues of reducing funds in the accounts of these companies, which they then often use to settle payments for the corresponding deliveries. “Rosneft”, “Lukoil” and many other key exporters have frequently held funds outside Russia, which they used in settlements for Russia’s needs

According to experts, the global market is already feeling the impact of the restrictions – sea shipments of crude oil from Russia have declined after the new sanctions were introduced.

All this signals a further reduction in Russia’s financial capabilities and increased pressure on its defense sector in the near term.