Trump against Russian oil: Loud and effective. Is that all?

Donald Trump's first sanctions against Russia have hit the country's main oil companies and delighted Ukraine's Western allies. At the same time, the market and experts reacted more calmly to the new restrictions. The main buyers of Russian oil will pretend that they refuse raw materials from Russia, but it will be temporary, they believe.

US sanctions against the largest Russian oil companies, Rosneft and Lukoil, will come into force on November 21.

"You know that China — you probably saw today — China is significantly reducing purchases of Russian oil, and India is completely stopping them," Donald Trump told reporters after the announcement of sanctions — on board an airplane during an Asian tour.

Beijing and New Delhi themselves do not comment on further actions, but for Russia, restrictions on companies look extremely sensitive, since China and India is the largest buyer of Russian oil and the decline in purchases will affect export revenues. Rosneft and Lukoil account for deliveries of up to 4 million barrels per day.

According to Reuters, citing sources, private Reliance Industries is the largest buyer of Russian oil in India and plans to significantly reduce purchases in Russia. Also, according to the agency, Indian state-owned companies are reviewing contracts so that there are no direct supplies from Rosneft and Lukoil.

The agency also claims that the Chinese largest state-owned companies have suspended purchases of Russian oil, which is delivered by sea.

"Chinese national oil companies PetroChina, Sinopec, CNOOC and Zhenhua Oil will refrain from trading offshore Russian oil, at least in the short term, due to concerns about sanctions," sources told Reuters.

Maxim Shaposhnikov, advisor to the Industrial Code Fund manager, believes that at the moment large Indian and Chinese businesses will really reduce purchases.

"But it is unlikely that the Americans resisted the temptation to drive large Chinese and Indian oil and gas companies under sanctions. This will automatically reset sanctions against Russian oil. If a miracle happens and the Americans do not bring major players in the oil and gas market of India and China under sanctions, they will dramatically increase purchases from independent traders from Singapore, Vietnam, Cambodia and Laos," the expert believes. According to him, this oil will formally no longer be Russian.

Russia's oil and gas revenues have already declined this year. The Russian Ministry of Finance estimated the reduction of oil and gas revenues from the planned in 2025 at 2.6 trillion rubles. However, it was not the sanctions that affected this, but the decline in global prices and the strengthening of the ruble. At the same time, back in January, Gazprom Neft and Surguneftegaz, which are also major oil producers and exporters, received similar sanctions from the United States. But supplies abroad remained at the same level.

"Yes, of course, the logistics schemes of intermediaries will be reviewed due to the fact that Rosneft andLukoil "has been sanctioned, but this is a revision of the way to sell our oil, but not a revision of the principle of whether to buy Russian oil," says Igor Yushkov, a leading analyst at the National Oil Research and an expert at the Financial University under the Government of Russia.

Sergei Vakulenko, a senior researcher at the Carnegie Berlin Center, believes that much will depend on how carefully the Trump administration will monitor compliance with the new sanctions.

"In the most severe case, this could mean leaving the market up to 4 million barrels per day of oil and 1.5 million barrels per day of petroleum products. Such a volume cannot be replaced quickly and completely, which means that this scenario would mean a significant increase in prices. Another question is what exactly does Trump need and how much effort is he willing to put into achieving this goal? If the task is simply to send Putin a signal of discontent, then it may be enough that the two companies will have headaches, some assets will depreciate and transaction costs will increase," the expert writes.

He believes that India will temporarily reduce purchases of Russian oil, and China will not do this, but it is unlikely that it will take over the released Indian volumes. As a result, exports from Russia may be reduced by 700 thousand barrels per day.

If the prospect of a complete shutdown of Rosneft and Lukoil exports were real, the price of oil would have increased by $ 20-30 per barrel, and not by $ 5, as immediately after the announcement of sanctions, notes Sergey Vakulenko.

"Large Chinese and Indian refiners can still temporarily portray their readiness to abandon Lukoil's oil and "Rosneft,“ but only to start buying it again when Trump's attention turns, say, to Venezuela. And smaller buyers will not do this either," writes a senior researcher at the Carnegie Berlin Center.

Igor Yushkov, a leading analyst at FNEB, notes that India simply does not make sense to abandon our oil, which is the most profitable on the market.

"What will she get in return? Reduction of US import duties on Indian goods? It is far from a fact that they will reduce. India is well aware that the United States is putting pressure on them to agree to sign a trade agreement that is less profitable for them. That's what, in general, the United States demands from them, and not abandoning Russian oil," adds Igor Yushkov.

Sergey Vakulenko reads that new sanctions may affect 15% of oil revenues, but will not reduce them significantly.

"This will create certain difficulties both for the state and for oil companies," says a senior researcher at the Carnegie Berlin Center, noting at the same time that sanctions will provide an additional incentive for the expansion and strengthening of a separate oil market that is not connected with the Western financial system, and deglobalization in general.

This may come as an unpleasant surprise to the West, as well as a small price increase, which partially compensates for the rising costs of selling Russian oil bypassing sanctions.

The People's Bank of China has connected the Renminbi Digital blockchain system for cross-border settlements and the network is discussing that it will be one of the ways out of the situation to continue exporting Russian oil bypassing sanctions.

"The news is very interesting, but the system is international. So she will comply with the sanctions against us for the time being. This means that payments through it will still be expensive and may lose out to direct contracts, but I am sure that the Americans will add this system to SDN, which will immediately make it counter—sanctioned and more accessible," says Maxim Shaposhnikov, adviser to the Industrial Code Fund manager. He believes that the system is not helping yet, but in a year or two it can make money for Russian business.

"You can call me a skeptic, a cynic or a pessimist. But I've worked in the oil and gas industry long enough to know that oil barrels will always find a way to leak — even if it takes some time (and additional discounts, and prompt assistance from China)," Bloomberg columnist Javier Blas wrote on Twitter.