Washington's oil dilemma returns: How to hurt Moscow without raising gas prices

Enforcing tough measures against a top oil producer risks triggering a supply shock

- Georgi Kantchev & Laurence Norman

Lukoil on Monday said it plans to sell its international assets due to the sanctions.

(AFP)

The Trump administration’s recent oil sanctions have revived a dilemma for the West: how to hurt Moscow’s war chest without inflicting economic self-harm.

Even after last week’s sanctioning of Russia’s two biggest oil producers, Rosneft and Lukoil, the U.S. has still more tools at its disposal to squeeze Moscow’s oil exports. Those range from blacklisting Russia’s shadow fleet of oil tankers to using secondary sanctions on banks, traders and refiners in other countries such as China or India.

But enforcing all these measures against one of the world’s top oil producers would risk triggering a supply shock and driving oil prices up. Squeezing Moscow is particularly fraught for Washington at a time when President Trump's tariff policies have injected uncertainty into inflation trends and midterm election season is approaching.

“They are trying to thread a needle. They have clearly been given instructions not to blow up the global economy, so that does mean they are going to be using sanctions against third or fourth league targets,” said Richard Nephew, a former senior U.S. State Department sanctions official. “Based on what we have seen so far, they are basically doing a signaling operation with the hope of inflicting some damage.”

The sanctions are already reverberating across Europe, where Rosneft and Lukoil still hold supply contracts and own facilities. Germany and several Eastern European states have pushed for exemptions. Lukoil on Monday said it plans to sell its international assets due to the sanctions.