Oil Surges As US Unleashes Toughest Sanctions On Russia's Energy Sector

The United States announced the toughest sanctions yet on Russia's oil industry on Friday.

What To Know: The news pushed global oil prices up by 3%, nearing $80 per barrel. The sanctions are part of Washington’s ongoing measures to penalize Russia for its invasion of Ukraine, aiming to disrupt oil exports to major buyers like India and China.

The measures include the blacklisting of 183 vessels involved in Russian energy exports, which could significantly disrupt the flow of oil. Previously, a Financial Times analysis showed that the 54 tankers sanctioned by the U.S. were forced to carry dramatically less oil due to heightened risks, hinting at potentially larger ramifications this time.

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Key targets include Russian oil giants Gazprom Neft and Surgutneftegaz, along with insurers Ingosstrakh and Alfastrakhovanie, which cover a significant portion of Russian oil shipments, Reuters reports. This move could intensify challenges for Russia, which has shifted oil exports to Asia since Western sanctions in 2022 curtailed its European markets.

The U.S. Treasury noted that the UK would coordinate and apply sanctions on Gazprom Neft and Surgutneftegaz alongside Washington, FT reports.

The sanctions also target active Russian liquefied natural gas (LNG) facilities and foreign organizations that support Russia's oil exports, further expanding the scope of penalties.

The sanctions, issued just days before President-elect Donald Trump takes office, create a challenge for his administration. Trump, who campaigned on quickly ending the war between Russia and Ukraine, has expressed skepticism about imposing additional sanctions, FT reports.

In September, he stated, “I want to use sanctions as little as possible.” Reversing these measures could put him at odds with Congress, where Republican members had been urging President Joe Biden to crack down on Russian energy revenues.

What Else: To adapt, Russia has relied on its fleet of tankers and domestic insurance providers. However, Indian refiners indicated they would avoid tankers or insurers under U.S. sanctions.

Per the Reuters report, India refining sources suggest Russia may further discount crude prices to below $60 to align with Western price caps and retain market access.

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Price Action From Key Oil ETFs:

• Shares of United States Oil Fund USO are up 4.8% to $80.99.
• Shares of Energy Select Sector SPDR Fund XLE are up 1.2% to $89.08.
• Shares of SPDR S&P Oil & Gas Exploration & Production ETF XOP are up 2% to $140.40.

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