Crude prices rally as US intensifies sanctions on Russian oil

The Biden administration’s new sanctions target Russia’s oil giants Gazprom Neft and Surgutneftegas, shadow fleet vessels, and opaque traders. Oil prices surged, while European equities slid as investors fear tighter global supply.

The Biden administration unveiled Friday sweeping sanctions targeting Russia’s oil sector, shaking global energy markets and deepening the economic isolation of Moscow just ten days before Donald Trump re-enters the White House.

In a press release, the US Department of the Treasury issued a series of new measures to curb Russian oil revenues, a critical source of funding for its military efforts in Ukraine.

The sanctions, which focus on major oil companies Gazprom Neft and Surgutneftegas, opaque oil traders, and 183 shadow fleet vessels, aim to tighten the screws on Russia’s energy exports and restrict its access to global markets.

What the new sanctions against Russia entail

The new sanctions mark an intensification of efforts to cut Russia off from one of its most lucrative industries.

Janet Yellen, US Treasury Secretary, said the measures “build on the G7+ price cap strategy” initiated in 2022, strengthening restrictions on the trade and financial facilitation of Russian oil.

Beyond targeting oil producers and traders, the sanctions include a prohibition on US petroleum services supporting Russian extraction and production, which will take effect in late February 2025.

This broadening of the sanctions regime underscores the Biden administration’s commitment to diminishing Moscow’s ability to fund its “brutal and illegal war against Ukraine.”

The sanctions align with a coordinated move by the United Kingdom, which imposed similar measures on Gazprom Neft and Surgutneftegas.

The new measures also aim to hit Russia’s increased reliance on high-risk shipping practices, such as shadow fleets and opaque traders, to sustain its oil exports.

“Today’s actions also impose sanctions on an unprecedented number of oil-carrying vessels, many of which are part of the ‘shadow fleet,’ opaque traders of Russian oil, Russia-based oilfield service providers, and Russian energy officials,” the US Treasury stated.

Markets respond: Oil prices surge, equities slide

Oil markets reacted swiftly to the sanctions.

West Texas Intermediate (WTI) crude soared 3.5% to $77 a barrel, marking its strongest session in three months, while Brent crude climbed 2.9% to $79 in late European trading.

Investors appear to think the sanctions could tighten global supply even further, especially as Russia’s dependence on a shadow fleet of vessels to evade restrictions becomes increasingly precarious.

Meanwhile, European equities flipped into the red.

The Euro STOXX 50 fell 0.9%, and the broader Euro STOXX 600 dropped 0.6%, with energy-heavy utilities like E.ON, Iberdrola, and EDP seeing losses exceeding 4%. Spain’s IBEX 35 suffered the worst blow, tumbling 1.4%.

In currency markets, the US dollar extended its dominance. The euro slid 0.5% to $1.0250, its lowest level since October 2022, while the British pound dropped 0.6% to $1.2220, the weakest since November 2023.

The dollar’s strength was bolstered by unexpectedly robust US employment data. December’s nonfarm payrolls report revealed 256,000 new jobs, far exceeding the forecast of 160,000 and marking the strongest gain since March 2024.