US President Donald Trump has warned Russia that he will impose economic measures, including taxes, tariffs and sanctions, unless Russian President Vladimir Putin agrees to end the war in Ukraine. While it is far from clear that economic pressure alone will be enough to bring Putin to the negotiating table, Russia’s oil and gas industry appears to be the most vulnerable sector of his war economy.
US sanctions on the Russian energy sector were already tightened in the first weeks of 2025. Before leaving the White House, outgoing US President Joe Biden fired a farewell salvo of new comprehensive sanctions on Russian oil producers, intermediaries, tankers, traders and ports that process both oil and liquefied natural gas (LNG).
The package was widely seen as one of the most aggressive since the start of Russia’s full-scale invasion. The impact is already being felt around the world. Some banks in India, which currently receives about 40 percent of all Russian oil shipped to international markets, are reportedly blocking payments for Russian oil imports. Meanwhile, the navy’s ability to service Russian crude exports is expected to be significantly reduced by the latest restrictions.
With oil sanctions also targeting major producers such as Surgutneftegaz and Gazprom Neft, as well as more than 180 vessels in Russia’s oil fleet, some observers now predict the Kremlin could lose as much as $24 billion over the next year. That would be equivalent to about one percent of the country’s projected GDP.
The latest sanctions come as Moscow is already adjusting to the end of gas transit through Ukraine after Kyiv refused to extend a five-year deal that expired earlier this year. With the end of that gas transit agreement, Russia has lost another significant chunk of the European market.
In his inaugural address on January 20, Trump vowed to “drill, baby, drill.” Since then, early steps to support the U.S. fossil fuel sector have included lifting the Biden administration’s freeze on export permits for LNG projects.
Many now expect to see more LNG exported from the US to Europe, potentially replacing remaining Russian gas supplies. More US exports at a time when the Russian gas industry is already facing mounting headwinds would put Trump in a strong position ahead of talks on a possible settlement to the war in Ukraine.
Trump could potentially increase pressure on Putin by calling on Ukrainian authorities to ban Russian oil transit through Ukraine to Hungary. There is currently a bill in the Ukrainian parliament calling on the government to stop oil transit and deprive the Kremlin of up to $6 billion in sales to European buyers. Additional options include a lower price cap, additional sanctions on remaining shipments, and expanded secondary sanctions.
The U.S. may have fewer options when it comes to gas-related sanctions. With demand from key LNG importers like China and India projected to recover in 2025, U.S. exports could be redirected to Asia, leaving Europe more dependent on Russian LNG and pipeline gas. Additional LNG production on Canada’s West Coast could create more supply capacity later this year, but it may not be enough to satisfy European consumers or allay concerns about rising energy bills.
While Trump's efforts to economically undermine Russia will face a number of practical problems, there is no doubt that Putin's energy empire looks increasingly fragile.
In particular, Russia’s Gazprom is in a tough spot. The Kremlin’s flagship energy company has reported multibillion-dollar losses over the past two years, a trend that is likely to worsen in 2025 as Ukrainian gas transit stops. Gazprom’s outlook is now so troubling that the company is reportedly seeking to raise domestic gas prices.
The new US administration has been quick to make clear that it views the Russian economy as the Putin regime’s most vulnerable point. Trump clearly intends to exploit this weakness to end the war in Ukraine. US efforts are likely to focus on the energy sector, which powers the Russian war machine.
Ideally, the United States would work closely with the EU and the UK in the coming months to expand current sanctions on the Russian energy sector, while working to tighten the implementation of existing measures. This would send a clear signal to Moscow that Russia’s current economic problems will only get worse if Putin rejects a negotiated settlement and refuses to end his invasion of Ukraine.
Dr Aura Sabadus is a senior energy journalist covering Eastern Europe, Turkey and Ukraine for Independent Commodity Intelligence Services (ICIS), a London-based global provider of energy and petrochemicals news and market data. Her views are her own.
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