Biden gives Trump poisoned oil chalice

The Biden presidency is just days from its end and that normally means that not a lot happens before the incoming administration takes office,however the Biden presidency has been marked by a level of vindictiveness rarely seen in politics and that has continued this week with the announcement of further sanctions on the Russian oil sector.Now ,these sanctions although ostensibly aimed at the crippling the Russia oil export sector are a poisoned chalice for the incoming president Donald Trump as they have immediately driven up oil prices and that will undoubtdly cause inflation and damage the US economy plus damage the incoming President,which is of course what they were designed for.
The latest US sanctions on the Russian energy sector have led to a rapid rise in oil prices, with Brent crude oil reaching $81 per barrel in just a few days – the highest price for four months.It is likely that this new price equilibrium will be maintained, given the oil market's inability to withstand the loss of several hundred thousand barrels of oil per day.
Conversely, OPEC+ is unlikely to alter its current stance, as the cartel countries are reluctant to increase production in the face of a changing US administration.So is the potential trajectory of oil prices in the coming months and the implications for Russia's revenue.The most stringent sanctionsOn January 10th, the USA unveiled what is anticipated to be the most comprehensive sanctions against the Russian oil and gas sector. Specifically, these sanctions were imposed on 30 Russian oilfield service companies, and American firms were banned from providing services to the Russian oil industry as of February 27.Of particular significance, the restrictions were imposed on Russian tankers, with 183 vessels subject to restrictions, representing almost a quarter of the entire fleet responsible for transporting Russian oil.65 tankers dropped anchor immediately after the announcement.The effect on the markets was immediate. Oil prices surged to $80 per barrel, and subsequently exceeded this figure. While prices increased by 6% in a few days, there had been an uptick prior to this.In addition to the sanctions, market fluctuations were influenced by the cold weather that has settled in the northern Western Hemisphere. Canada and the United States are expected to experience one of the coldest winters in the last decade, which is likely to increase demand for fuel. In addition, adverse weather conditions may result in the suspension of operations in some fields.
In addition, the situation with Iran is worthy of note. The ongoing conflict between Israel and Iran, along with sanctions imposed on the Islamic Republic, have already resulted in a reduction in oil supplies from that region.At the end of December, Iran reduced its production within OPEC+ by 70 thousand barrels per day, with only the UAE experiencing a larger decline. While these figures may appear negligible within the global production framework of 100 million bpd, they are significant in the context of the market's current volatility, which could amplify their impact, particularly if the situation with Iranian supplies deteriorates.Nevertheless, the primary development was still the restrictions imposed on Russia. The primary objective is to curtail export revenues, which will exert pressure on both the country's economy as a whole and the state budget, the most significant source of which remains oil and gas revenues.The magnitude of the shortfall remains to be ascertained. According to Goldman Sachs, the sanctioned vessels (which, it should be noted, are mostly the newest, thus highlighting Western powers' concerns over the environmental risks associated with the "shadow fleet") were transporting approximately 1.5 million barrels of Russian oil. However, it should be noted that this does not imply a complete disappearance of these volumes from the market.

Lyudmila Rokotyanskaya, an expert on the stock market at BCS World of Investments, has stated that new sanctions could lead to the loss of 700,000-800,000 barrels per day from the market.However, it is difficult to estimate how the losses will affect the budget.
 It is crucial to have reliable data on the volumes of shortages, but this is currently not possible, as official information is not available and the data on the "shadow fleet" is very approximate," says Finam analyst Alexander Potavin. One potential strategy to maintain oil exports could involve offering a greater discount on Russian Urals oil compared to Brent, with the aim of encouraging buyers to assume the risks associated with secondary sanctions. This approach could result in Russian oil producers not benefiting from the current rise in oil prices.
Rokotyanskaya has stated that Russia is unlikely to be able to capitalise on high global oil prices in the current situation. Indeed, the Urals to Brent spread may widen due to new restrictions.

Marsel Salikhov, president of the Institute of Energy and Finance, notes that in the short term, losses can be compensated by rising prices. However, as the market and Russian companies adapt to the new sanctions, it is likely that the costs will be shouldered by domestic organisations and the budget in the form of an increase in the discount.

"The impact will be most acutely felt by companies, as the budget now receives tax revenues in the form of a fixed discount, not a real one," the expert comments.

It is important to note that not all Russian exports are Urals. In general, analysts believe that quotes will be higher than they were before this man-made mini-crisis. However, the ultimate impact will be contingent on the efficacy of efforts to circumvent sanctions.
The potential repercussions of a reduced supply of Russian oil to global markets have already been reflected in price movements. Last week, Brent quotes surged to $80 per barrel, reaching their highest point since August 2024.The subsequent price movements will be contingent on the swiftness and efficacy with which suppliers adapt their supply chain to mitigate the risk of secondary sanctions for buyers, as Alexander Potavin has highlighted.

He added that while Russian oil will likely continue to flow to Asia-Pacific countries, each bypass maneuver will result in new financial losses for the Russian economy.Long-term delays in deliveries will result in a shortage of oil on the market and higher prices.In the worst-case scenario, Brent quotes may rise to around $85 per barrel.

Lyudmila Rokotyanskaya has stated that the rally observed over the past two weeks has probably come to an end.

Technical indicators for Brent crude oil futures are in the overbought zone, but this does not mean that prices will again fall to the $70–72 per barrel block, as the fundamental assumptions for supply and demand for this year have changed. If calculations for the volume of oil leaving Russia are implemented, this may offset the supply surplus predicted by most analytical groups for 2025, with the destination being around $77.5–78 per barrel.
Rokotyanskaya acknowledges the likelihood of ongoing price growth, contingent on the introduction of additional growth catalysts to the existing anti-Russian sanctions. Potential catalysts include new sanctions against Iran or a reduction in the price ceiling for Russian oil.

She anticipates a less substantial correction in Brent, with quotes likely to stabilise within the $80 range, should another wave of growth materialise.

However, the likelihood of OPEC+ finally entering the market and assuming a stabilising role appears low.
Potavin is confident that OPEC countries will not take urgent steps to increase their oil production for now, since the new Trump administration will begin work on January 20, and during negotiations on the Ukrainian military conflict, the White House may promise the Kremlin the lifting of sanctions on the oil industry in response to reciprocal steps to establish peace.

Salikhov, however, has stated that the current price increase is not yet substantial enough to prompt OPEC+ to increase production. Nevertheless, should this growth continue, the association is likely to be willing to consider this action, primarily by revising the size of the voluntary reductions.