As its parting shot, the Biden administration imposed the toughest sanctions yet on Russian oil. The incoming Trump administration is changing tack and talking about negotiations and territorial giveaways to bring the conflict between Ukraine and Russia to an end. Many see the potential compromise this entails as a win for Russian President Vladimir Putin.

But that is not the only option, argues Christof Ruehl, Senior Research Scholar at the Centre on Global Energy Policy, Columbia University, and the former chief economist at both BP and the World Bank in Moscow, in an opinion piece for the Financial Times on February 2. Biden’s oil sanctions can be ramped up and they would cause chaos in the Russian economy, says Ruehl, who is also a bne IntelliNews commentator.

“Russia’s economy stands on clay feet. Smaller than Italy’s, it is fuelled by military production, state procurement and directed credits. Inflation runs at 9.5% and the central bank’s policy rate at above 20%, while the ruble hovers near historic lows. It is held together by competence (and a reasonably free hand) in the Ministry of Finance and the central bank, but what really keeps it going are foreign currency earnings,” said Ruehl.

Western economic sanctions have failed, says Ruehl, because gaping holes were left in the regime at every stage in order to maintain flows of Russian oil onto the international market and avoid damaging price spikes. As Ruehl argued in an oil podcast with bne IntelliNews after the start of the war: to make sanctions work, those imposing the sanctions have to take some real pain, and the West has not been prepared to do that.

“Each step towards building an effective sanctions regime – banning direct oil imports, restricting shipping and financial services, and even the imposition of a price cap – came with escape routes wide open,” said Ruehl. “[The West] wants to have its cake and eat it too. This is not a case of stringent sanctions having failed, but of sanctions not being stringent enough to damage Russia’s war economy.”

The Trump administration could drive a wedge between Russia and OPEC, which has painted itself into a corner. It has slashed production several times since 2022 to maintain prices, but at the cost of reducing its market share; OPEC still has some 5.5mn barrels per day (bpd) of idle production. For OPEC the problem is: how to increase production to gain more market share without collapsing prices.

“Enter Donald Trump. The new US president could call on OPEC. He can pledge to ratchet up oil sanctions on Russia to the point where their impact becomes more acute: these would target not only producers, but refiners, ports, insurers and the shadow fleet. He can also apply more political pressure on China, India and Turkey to support compliance,” argues Ruehl.

The harsh new oil sanctions on Russia could be made harsher still. For example, 183 shadow fleet tankers have been included in the new sanctions out of a total of around 400 and effectively put out of circulation.

The tankers which are moving are being vague about their destination (“for orders”), headed back to Russian ports, or are loitering at the end of the pumping line near Malaysia or Egypt. Tanker utilisation often drops 75% or more, once they have been sanctioned by the US Office of Foreign Assets Control (OFAC), according to industry experts. The recent Biden harsh sanctions on the shadow fleet have already caused chaos and India in particular is anticipating supply disruptions as a result and has already started looking for alternative suppliers of crude ahead of March, when the new sanctions come into effect.

Adding a lot more tankers to the sanctions list would have devastating effects on the Russian budget, but the oil that would take out of circulation – Russia exports some 5mn bpd, of which 3.5mn bpd is seaborne crude and another 2mn bpd is refined oil products – could be covered by OPEC alone, and more than covered if Trump carries through on his promise to “drill, baby, drill.”

“Could it work? It most certainly can,” says Ruehl. “OPEC might baulk. After all, the deal endangers OPEC+, the wider producer association. But OPEC is the senior partner, holding 90% of global spare capacity. The political benefits of supporting the ambitious domestic and external agenda of the leading Gulf economies will help; loyalty is unlikely to change their calculus.”

Moscow and the Middle East have moved closer together in recent years as Crown Prince of the Kingdom of Saudi Arabia Mohammed bin Salman (MbS) in particular is trying to build a Middle Eastern bloc that has good relations with both the US and the BRICS. However, his primary concern remains the health of his own economy and while the KSA has partnered with the BRICS+ organisation, MbS continues to flirt with the West and is not above supporting a tightening of restrictions on Russian exports, if that means he can increase Saudi oil exports without collapsing prices. The Middle East remains very conscious that peak oil is approaching in the coming decades and have been pushing to keep prices close to $100 per barrel to make as money as they can before that point arrives, Christopher Weafer is CEO of Macro-Advisory, a Eurasia based strategic consultancy, argued recently at the Berlin Energy Forum event on oil organised by bne IntelliNews, and also featuring Ruehl.

“Ramping up production would help OPEC out of its impasse. The switch would be possible,” says Ruehl. “It would placate the right candidates too. The western alliance would continue to benefit from well-supplied oil markets and stable prices; Opec would get a leg-up to manoeuvre out of the cul-de-sac it finds itself in. With increased pressure on inflation and the exchange rate, Russia would be on the brink of financial disorder. If it is true that President Vladimir Putin is afraid of political unrest at home, then this approach is more likely to get him to the negotiating table than anything that has been tried before.”