ECONOMY
How the War and Latest Western Sanctions Are Impacting Russia’s Oil Sector
February 17, 2026
-
Sergey Vakulenko
Senior fellow at the Carnegie Russia Eurasia Center
In recent months, the US has been increasing pressure on the Russian oil sector. After imposing sanctions on Rosneft and Lukoil last autumn, the Trump administration has been pressuring India with the ostensible goal of depriving Russia of one of the key remaining buyers of its oil. Oil and gas market expert Sergei Vakulenko of the Carnegie Russia Eurasia Center believes that even in the worst-case scenario of US sanctions, Russia will likely still export enough oil to continue financing its war.
This is a shortened and translated version of an article originally published by Republic.
Is Russia’s dependence on oil a myth?
It depends on what one means by “dependence.” Indeed, at a certain point oil became a very important component of foreign trade, the budget and GDP. But I would not call Russia an “oil emirate.” Compared to several post-Soviet countries, as well as Saudi Arabia, Kuwait, Brunei, Venezuela and others, the share of oil earnings in Russia’s budget has been significantly smaller. Even in the highest-earning years, oil represented only about a quarter of Russia’s GDP.
Is this dependence now decreasing even further?
Yes. It is not entirely a voluntary reduction, but it is happening.
This is good for the economy, is it not?
Oil earnings have kept the Russian economy running. A great deal – including domestic demand – is a product of money from oil. In other words, if there were no oil in the Russian economy, it would look much more like Ukraine’s. The additional money that oil brings into the economy allows all sorts of sectors [and companies] to flourish – from Yandex to Transmashholding, for example. Russia does not have any other major export commodity, and that is a problem.
Is Russia’s dependence on oil a myth?
It depends on what one means by “dependence.” Indeed, at a certain point oil became a very important component of foreign trade, the budget and GDP. But I would not call Russia an “oil emirate.” Compared to several post-Soviet countries, as well as Saudi Arabia, Kuwait, Brunei, Venezuela and others, the share of oil earnings in Russia’s budget has been significantly smaller. Even in the highest-earning years, oil represented only about a quarter of Russia’s GDP.
Is this dependence now decreasing even further?
Yes. It is not entirely a voluntary reduction, but it is happening.
This is good for the economy, is it not?
Oil earnings have kept the Russian economy running. A great deal – including domestic demand – is a product of money from oil. In other words, if there were no oil in the Russian economy, it would look much more like Ukraine’s. The additional money that oil brings into the economy allows all sorts of sectors [and companies] to flourish – from Yandex to Transmashholding, for example. Russia does not have any other major export commodity, and that is a problem.
Ivan Stepanov / Unsplash
The second point is the very strong ruble. A while ago, when you multiplied the price of a barrel of oil by the dollar exchange rate, the result was always RUB 3,000-3,500. That is, $50 per barrel, the dollar was worth about RUB 60. This held true until roughly 2008. But then inflation in Russia accelerated. Given current oil prices, the ruble should obviously be much weaker.
Now, taking accumulated inflation into account, a barrel costs about RUB 1,250 in 2010 prices. In 2010, a barrel of oil cost roughly RUB 3,000. If the ruble had depreciated at approximately the same rate as the inflation differential accumulated between Russia and the US, the dollar exchange rate would now be in triple digits.
Why is this happening? Because starting in 2022, Russia’s foreign trade has been severely constrained. Russia, oddly enough, has difficulty turning its dollars into goods, and as a result these dollars are cheaper than they otherwise would be. This is a major problem, both for the state and for oil companies, as these oil dollars – or now, more precisely, yuan – translate into far fewer rubles, which oil companies use to pay their contractors and suppliers. For the state, this means teachers, doctors, pensioners and contract soldiers.
Let’s look at another very popular thesis. If they stop buying oil from Russia today, the war will end tomorrow and Putin will be finished the day after tomorrow. Is this true?
First, it is impossible to stop buying oil from Russia completely.
There is simply no surplus oil in the world capable of replacing the roughly 7 million barrels Russia supplies to the market. That means some Russian oil will still have to be purchased.
Second, if purchases of Russian oil are sharply reduced, Russia will sell less, but at a much higher price, at least for the next few years. There would be a significant global shortage, with oil prices in the range of $200-250 per barrel. No one would be able to ramp up production quickly enough to offset this. Many things – travel, for example – would become prohibitively expensive. An economic downturn would ensue.
Who is buying Russian oil now?
Around 90% goes to China, India and Turkey. Another 5% goes to Hungary and Slovakia. There are also very small buyers. For example, oil from Sakhalin goes to Japan – there is a special permit for this.
Talk of India halting purchases of Russian oil has been ongoing since the summer, when the US imposed additional tariffs on Indian goods, using Russian oil imports as a pretext, though the real reasons were different – in particular, US access to the Indian agricultural market. At the time, the idea was the US would be satisfied if India reduced oil purchases from Russia to about 1.0 million from roughly 1.7 million barrels per day. By January, this had already happened. How things will turn out remains to be seen. In 2019, under pressure from Trump, India stopped purchasing Iranian oil, but the volumes then were much smaller – around 500,000-600,000 barrels per day.
What about Germany via Kazakhstan?
Kazakhstan supplies oil to Germany via Transneft trunk pipelines and then the Druzhba pipeline. However, no molecules of Kazakhstani oil physically reach Germany – they are Russian molecules. But the volumes are very small. In exchange, Kazakhstan allows Russian oil to flow through the Atasu-Alashankou (Kazakhstan-China) pipeline.
Now, taking accumulated inflation into account, a barrel costs about RUB 1,250 in 2010 prices. In 2010, a barrel of oil cost roughly RUB 3,000. If the ruble had depreciated at approximately the same rate as the inflation differential accumulated between Russia and the US, the dollar exchange rate would now be in triple digits.
Why is this happening? Because starting in 2022, Russia’s foreign trade has been severely constrained. Russia, oddly enough, has difficulty turning its dollars into goods, and as a result these dollars are cheaper than they otherwise would be. This is a major problem, both for the state and for oil companies, as these oil dollars – or now, more precisely, yuan – translate into far fewer rubles, which oil companies use to pay their contractors and suppliers. For the state, this means teachers, doctors, pensioners and contract soldiers.
Let’s look at another very popular thesis. If they stop buying oil from Russia today, the war will end tomorrow and Putin will be finished the day after tomorrow. Is this true?
First, it is impossible to stop buying oil from Russia completely.
There is simply no surplus oil in the world capable of replacing the roughly 7 million barrels Russia supplies to the market. That means some Russian oil will still have to be purchased.
Second, if purchases of Russian oil are sharply reduced, Russia will sell less, but at a much higher price, at least for the next few years. There would be a significant global shortage, with oil prices in the range of $200-250 per barrel. No one would be able to ramp up production quickly enough to offset this. Many things – travel, for example – would become prohibitively expensive. An economic downturn would ensue.
Who is buying Russian oil now?
Around 90% goes to China, India and Turkey. Another 5% goes to Hungary and Slovakia. There are also very small buyers. For example, oil from Sakhalin goes to Japan – there is a special permit for this.
Talk of India halting purchases of Russian oil has been ongoing since the summer, when the US imposed additional tariffs on Indian goods, using Russian oil imports as a pretext, though the real reasons were different – in particular, US access to the Indian agricultural market. At the time, the idea was the US would be satisfied if India reduced oil purchases from Russia to about 1.0 million from roughly 1.7 million barrels per day. By January, this had already happened. How things will turn out remains to be seen. In 2019, under pressure from Trump, India stopped purchasing Iranian oil, but the volumes then were much smaller – around 500,000-600,000 barrels per day.
What about Germany via Kazakhstan?
Kazakhstan supplies oil to Germany via Transneft trunk pipelines and then the Druzhba pipeline. However, no molecules of Kazakhstani oil physically reach Germany – they are Russian molecules. But the volumes are very small. In exchange, Kazakhstan allows Russian oil to flow through the Atasu-Alashankou (Kazakhstan-China) pipeline.
Aleksei Malenchik / Unsplash
So globally the Western pro-Ukraine coalition has moved away from Russian oil?
Globally, yes. This happened back in late 2022-early 2023. Bulgaria did so at the very end of 2024.
What are the latest US sanctions and the 19th EU sanctions package about? How do they change the situation with Russian oil?
In theory, those who buy Russian oil from Rosneft and Lukoil now risk falling under US sanctions. Those who help move this oil from Russia to India and China face the same risk. Naturally, this leads to various shell games to provide cover – formally, it is no longer Rosneft’s or Lukoil’s oil, but that of some unknown limited liability company. Nevertheless, the risks have gone up, and transaction costs for Russian oil have risen. The US is also, in principle, putting pressure on India to buy less Russian oil.
Can the US threaten China in the same way?
There is little point in threatening China. There is already a very serious trade war between China and the US.
To what extent do political factors and the war conceivably influence the price at which Russia sells oil?
It is worth distinguishing between the selling price at Russian ports and at Asian ones. India buys Russian barrels at Indian ports for a few dollars less than other comparable grades. Literally a few dollars less – $2-3, sometimes $5. China receives roughly the same discounts.
But if there are so few buyers, why cannot they tell Russia: look, no one else is buying anything from you, so sell it to us much cheaper, otherwise you will be left with nothing.
Let me reiterate there is no excess oil in the world – at least until very recently, around autumn 2025. Thus, the response to the ultimatum you gave as an example would be very simple: “go buy it somewhere else.” It turns out there is nowhere else to buy it.
After the sanctions in November, the discount on Russian oil did increase slightly, but before that it was practically nonexistent. Still, it is not entirely clear what exactly caused this change: the sanctions themselves or OPEC’s actions, which opened the spigot and created a surplus in the market.
You see, if supplies are not regular, buyers start having problems. You go to your usual sellers, and they tell you, “sorry, all our oil is going to Rotterdam now.” In such a situation there are few alternatives, and Russia understands this well: if a buyer has no viable alternatives, they are forced to buy at world prices.
What are the current trends in and realistic forecasts for Russian oil exports? Will Russia continue to be “strangled,” with both earnings and sales being ground down, or have exports already stabilized?
The Western coalition would certainly like to increase the pressure as much as possible. Quite a few bills aimed at curbing Russian oil exports are being discussed in the US Congress. Some call for particularly tough measures – take HR 7095 (Ending Importation of Laundered Russian Oil Act), which entails sanctions against anyone who buys Russian oil or facilitates its purchase. The logic here is simple and fairly common: if Russia cannot export oil, its economic power will decline sharply, and this will surely force the Kremlin to stop the war.
But Russia will always sell a million barrels a day through the pipeline to China. How tough would this be for Russia? Tough, of course. But I seriously doubt it would lead to Russia being physically unable to finance military operations and maintain its army.
But what if we ask not how oil affects the war, but how does the war affect the oil and gas industry? Could a continuation of the war destroy it?
Because of the war, the oil and gas industry is, first of all, facing serious problems in terms of refining. Looking at refineries, no one-off Ukrainian drone attack has caused long-term damage. But repeat, larger-scale attacks could create a situation where, at some point, it will no longer be possible simply to patch up or repair distillation columns – they will have to be replaced entirely.
If a person is hit once, even quite hard, he or she most likely will not die. But if a person is beaten regularly, he or she, generally speaking, can die. It is not a knife stab to vital organs, but regular beatings from which people can die – not right away, but over time. Moreover, all this diverts money and resources.
A second point: capital is currently expensive in Russia, and the labor supply in serious trouble. The oil industry thus continues to exploit its existing production base: drilling wells in old fields without developing new ones. Due to this, oil production in Russia will likely start to decline – and in the very near future.
This decline is set to be slow – at 2-3% per year – but steady. The Russian oil industry will still be able to manage this decline amid its current level of investment, that is, preventing production from free-falling. At the same time, getting production to plateau will be quite hard.
Theoretically, this could be solved with a sharp increase in investment. But then the Ministry of Finance steps in and says: no, we cannot afford to take less rent from the oil sector. The money the oil sector could invest in maintaining production levels is now needed for other purposes, and taxes will not be cut.
The Ministry of Finance, of course, understands that in a few years things will worsen: the tax base will shrink, and oil production will go down. But the logic is just to hang on – what happens next, happens next.
The war has left everyone with a short time horizon for planning. For the oil industry, this is generally bad.
When the war ends, will the West go back to Russian oil? Is it important for the West? Or have things already changed so much that a pivot back to Russian oil should not be expected?
For the West, Russian oil is undoubtedly more profitable to buy. You cannot argue with geography, nor with long-standing technical alignment with Russian oil grades. It is possible to do without Russian oil, but Russian oil is more convenient.
From a business perspective, I think oil companies would be willing and happy to buy Russian oil again, albeit in smaller quantities. Perhaps in such volumes so they could switch quickly to alternatives if something were to happen. But still.
Their governments are in a completely different mood, however. For Europe, for many European politicians, even after the war ends – barring some tectonic political shift in Russia – Russia will remain a danger that is best avoided. And this attitude toward Russia will likely persist for quite some time.
Globally, yes. This happened back in late 2022-early 2023. Bulgaria did so at the very end of 2024.
What are the latest US sanctions and the 19th EU sanctions package about? How do they change the situation with Russian oil?
In theory, those who buy Russian oil from Rosneft and Lukoil now risk falling under US sanctions. Those who help move this oil from Russia to India and China face the same risk. Naturally, this leads to various shell games to provide cover – formally, it is no longer Rosneft’s or Lukoil’s oil, but that of some unknown limited liability company. Nevertheless, the risks have gone up, and transaction costs for Russian oil have risen. The US is also, in principle, putting pressure on India to buy less Russian oil.
Can the US threaten China in the same way?
There is little point in threatening China. There is already a very serious trade war between China and the US.
To what extent do political factors and the war conceivably influence the price at which Russia sells oil?
It is worth distinguishing between the selling price at Russian ports and at Asian ones. India buys Russian barrels at Indian ports for a few dollars less than other comparable grades. Literally a few dollars less – $2-3, sometimes $5. China receives roughly the same discounts.
But if there are so few buyers, why cannot they tell Russia: look, no one else is buying anything from you, so sell it to us much cheaper, otherwise you will be left with nothing.
Let me reiterate there is no excess oil in the world – at least until very recently, around autumn 2025. Thus, the response to the ultimatum you gave as an example would be very simple: “go buy it somewhere else.” It turns out there is nowhere else to buy it.
After the sanctions in November, the discount on Russian oil did increase slightly, but before that it was practically nonexistent. Still, it is not entirely clear what exactly caused this change: the sanctions themselves or OPEC’s actions, which opened the spigot and created a surplus in the market.
You see, if supplies are not regular, buyers start having problems. You go to your usual sellers, and they tell you, “sorry, all our oil is going to Rotterdam now.” In such a situation there are few alternatives, and Russia understands this well: if a buyer has no viable alternatives, they are forced to buy at world prices.
What are the current trends in and realistic forecasts for Russian oil exports? Will Russia continue to be “strangled,” with both earnings and sales being ground down, or have exports already stabilized?
The Western coalition would certainly like to increase the pressure as much as possible. Quite a few bills aimed at curbing Russian oil exports are being discussed in the US Congress. Some call for particularly tough measures – take HR 7095 (Ending Importation of Laundered Russian Oil Act), which entails sanctions against anyone who buys Russian oil or facilitates its purchase. The logic here is simple and fairly common: if Russia cannot export oil, its economic power will decline sharply, and this will surely force the Kremlin to stop the war.
But Russia will always sell a million barrels a day through the pipeline to China. How tough would this be for Russia? Tough, of course. But I seriously doubt it would lead to Russia being physically unable to finance military operations and maintain its army.
But what if we ask not how oil affects the war, but how does the war affect the oil and gas industry? Could a continuation of the war destroy it?
Because of the war, the oil and gas industry is, first of all, facing serious problems in terms of refining. Looking at refineries, no one-off Ukrainian drone attack has caused long-term damage. But repeat, larger-scale attacks could create a situation where, at some point, it will no longer be possible simply to patch up or repair distillation columns – they will have to be replaced entirely.
If a person is hit once, even quite hard, he or she most likely will not die. But if a person is beaten regularly, he or she, generally speaking, can die. It is not a knife stab to vital organs, but regular beatings from which people can die – not right away, but over time. Moreover, all this diverts money and resources.
A second point: capital is currently expensive in Russia, and the labor supply in serious trouble. The oil industry thus continues to exploit its existing production base: drilling wells in old fields without developing new ones. Due to this, oil production in Russia will likely start to decline – and in the very near future.
This decline is set to be slow – at 2-3% per year – but steady. The Russian oil industry will still be able to manage this decline amid its current level of investment, that is, preventing production from free-falling. At the same time, getting production to plateau will be quite hard.
Theoretically, this could be solved with a sharp increase in investment. But then the Ministry of Finance steps in and says: no, we cannot afford to take less rent from the oil sector. The money the oil sector could invest in maintaining production levels is now needed for other purposes, and taxes will not be cut.
The Ministry of Finance, of course, understands that in a few years things will worsen: the tax base will shrink, and oil production will go down. But the logic is just to hang on – what happens next, happens next.
The war has left everyone with a short time horizon for planning. For the oil industry, this is generally bad.
When the war ends, will the West go back to Russian oil? Is it important for the West? Or have things already changed so much that a pivot back to Russian oil should not be expected?
For the West, Russian oil is undoubtedly more profitable to buy. You cannot argue with geography, nor with long-standing technical alignment with Russian oil grades. It is possible to do without Russian oil, but Russian oil is more convenient.
From a business perspective, I think oil companies would be willing and happy to buy Russian oil again, albeit in smaller quantities. Perhaps in such volumes so they could switch quickly to alternatives if something were to happen. But still.
Their governments are in a completely different mood, however. For Europe, for many European politicians, even after the war ends – barring some tectonic political shift in Russia – Russia will remain a danger that is best avoided. And this attitude toward Russia will likely persist for quite some time.
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