By Georgi Kantchev and Laurence Norman

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.

Moscow's oil revenues will likely take a hit as tougher logistics and payment hurdles cut into profits and force deeper discounts, but for now analysts expect that exports will hold steady. Experience suggests Russia will turn to its shadow fleet, obscure networks of intermediaries and nondollar financial channels to sidestep the sanctions.

The Russian oil sector has also been under pressure from Ukrainian strikes targeting refineries and other energy infrastructure, heightening concerns about global oil supply and prices.

Since Western sanctions were first imposed at the start of the war, Russia has been playing a game of cat and mouse with the U.S. and Europe.

The European Union and the U.K. have imposed tough sanctions, but the lion's share of enforcement power lies with the U.S. The Treasury Department has a powerful enforcement arm with decades of experience tracking sanctions evasion and has levied hefty fines on foreign violators. The EU and U.K. lack such centralized oversight, leaving enforcement to individual EU member states.

Unlike Europe, the U.S. frequently deploys secondary sanctions that penalize non-U.S. entities for dealings with sanctioned parties -- effectively forcing compliance by threatening access to the U.S. financial system. Brussels has used similar measures only sparingly.

"The fear of being frozen out of U.S. dollar payment networks is very real," said Robin Brooks, a senior fellow at the Brookings Institution.

At the same time, the U.S. and Europe aren't fully aligned in their sanctions policies.

According to a tally by Brooks, the EU has targeted over 550 vessels from Russia's shadow fleet and the U.K. around 500, measures that include freezing assets and penalizing the owners and operators of the vessels. They are also banned from European ports. The U.S. has targeted some 216 tankers.

The Trump administration has also largely disengaged from an oil price cap, imposed by the Group of Seven nations, that sought to permit Russian oil to be traded with non-Western countries only if the amount paid was below a cap, currently set at $47.60. The U.S. could also go after intermediary financial institutions, nondollar payment networks and banks that handle Russian oil transactions to disrupt Moscow's ability to bypass dollar-based sanctions.

Those gaps in the sanctions regime provide an opportunity for Moscow to continue stable exports. A January sanctions round by the outgoing Biden administration offers a case in point.

At the time, Washington blacklisted Gazprom Neft and Surgutneftegas, the third and fourth-biggest Russian producers. But analysts at J.P. Morgan say that while documented exports from these companies fell, overall Russian seaborne volumes were maintained by using newly established entities not legally connected to the sanctioned companies as well as shadow shipping. Iran's oil has been under major sanctions for years, and yet it has still managed to keep exports high.

Meanwhile, only about 5% of Russia's oil exports are currently settled in dollars, a sharp drop from 55% before the invasion of Ukraine, according to J.P. Morgan. The ruble now accounts for 24% and the Chinese yuan dominates at 67% of payments, putting most Russian barrels outside the U.S. financial system.

"So far, exports of Russian [and other sanctioned] crudes have been surprisingly robust in the face of sanctions," analysts at Morgan Stanley said in a Monday report to clients.

Still, the dollar's reach is long. Key parts of commodities trading -- including logistics, freight and insurance -- rely on it. Losing access to the dollar system makes every stage of the process slower and costlier.

The new U.S. sanctions also raise the risks for refiners in China and India -- Russia's main buyers -- which analysts say will prompt them to demand deeper discounts. Reliance on shadow tankers and intermediary traders further inflates shipping costs for Russian exporters.

Russian energy revenues were already down this year amid low global oil prices. In September, Russia's monthly fossil fuel export revenues fell to their lowest level since the invasion, contributing to a rising budget deficit.

"I think the Europeans are intending to do damage but they are doing so in a very nervous way. I think the jury is out as to whether the U.S. are really trying to do damage" to Russia's economy, said Nephew, the former State Department sanctions official.

Write to Georgi Kantchev at georgi.kantchev@wsj.com and Laurence Norman at laurence.norman@wsj.com

(END) Dow Jones Newswires

October 28, 2025 23:00 ET (03:00 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.