Opinion US sanctions on Russian oil are not about Ukraine, but its own shale industry

Unlike UN sanctions that target specific entities, US sanctions are far broader. They punish not only the sanctioned firms but also anyone dealing with them. Non-compliance can land countries or companies on the Specially Designated Nationals and Blocked Persons (SDN) List, enforced by the US Office of Foreign Assets Control (OFAC), and cut them off from SWIFT (Society for Worldwide Interbank Financial Telecommunication) — the global network that enables cross-border payments. Losing access can freeze a nation’s trade overnight. The same risks extend to insurance, shipping, and technology systems, forcing refineries, shipping lines, and software vendors to quickly fall in line. Once Washington blacklists a company, few dare to engage with it.

India learned this the hard way in July 2025, when Microsoft’s suspension of services to the Gujarat-based Nayara Energy — a refinery with Russian shareholding — froze digital operations for weeks. The episode showed how quickly sanctions can leap from oil barrels to software systems and shut all operations. It also proved that America doesn’t need warships to choke an economy — it can do so through software, servers and payment codes.

Almost every major buyer, except China, is backing away from Russian oil.

The US says the goal of sanctions is to starve Moscow of money and bring peace to Ukraine. But if peace were truly the aim, Washington could achieve it without blocking a single barrel of Russian oil. It would only need to stop the flow of weapons and Starlink internet support sustaining Kyiv’s war effort. American arms sales to Ukraine have already topped $150 billion since the start of the war.

The uncomfortable truth is that war has become good business for US defence contracts; their logistics and energy exports are all booming. As economist Jeffrey Sachs has noted, the roots of the Russia-Ukraine conflict lie not in 2022 but in years of NATO’s eastward expansion — a policy driven mainly by Washington and long opposed by Moscow. The sanctions are less about moral principle and more about power and price.

Strip away the rhetoric and Washington’s real goal comes into focus — keeping global oil prices high enough to save America’s fragile shale oil industry. Most US crude comes from light, sweet shale oil, produced through fracking — blasting rock with high-pressure water, sand, and chemicals — and horizontal drilling, rather than traditional wells. Unlike traditional wells, shale oil fields decline fast, losing up to 70 per cent of output in the first year. They need prices above $55 a barrel to survive.

The maths is simple. Russian Urals crude sells for about $55 a barrel, while West Texas Intermediate (WTI) hovers near $60. Washington has removed a significant share of global output by targeting Rosneft and Lukoil, which pump roughly 60 per cent of Russia’s oil. Sanctioning Russian firms that supply a tenth of the world’s crude tightens global supply and lifts prices by $15–$20 a barrel — just enough to keep US shale profitable.

So the strategy is straightforward: Make Russian oil untouchable, tighten supply, and let scarcity prop up prices. But there’s a significant weakness in this plan. America wants the world to buy its oil and petroleum products instead of Russia’s — yet it doesn’t have enough to sell.

In 2024, the US exported $298 billion in petroleum and imported $246 billion, but the numbers hide a $60 billion crude oil deficit. The US still imports far more crude oil — about $174 billion worth — than it exports, around $115 billion. The mismatch can’t be wished away.

There’s another problem. The US mainly produces light, sweet shale oil, while many refineries — at home and abroad — are configured for heavier grades. America thus exports its lighter crude to Europe and Asia even as it imports heavier feedstock to keep domestic refineries running.

And with no spare refining capacity, America can’t easily turn more of its oil into finished products. Even if every rig in Texas worked overtime, America couldn’t replace the 7 million barrels per day of Russian oil being pushed off world markets. The lack of refining and production capacity hasn’t stopped Washington from selling a dream. The US has secured commitments from allies to replace Russian oil with American supply and LNG under the threat of high tariffs.

The EU has pledged $750 billion in US oil, gas, and nuclear imports over three years. Japan will buy about $7 billion in LNG annually. The UK has locked in a 10-year LNG deal starting in 2028. Vietnam and Thailand have contracts through 2040.

All these promises exceed America’s actual export capacity. Inventories are at decade lows, OPEC+ is capping output, and Red Sea disruptions add weeks to shipping times. The irony is apparent — in trying to revive its shale oil industry by punishing Moscow, Washington may end up enriching other producers, from Saudi Arabia to Venezuela, and plunging the world into a US-made energy crisis.

Most Indian refiners have begun cutting Russian crude purchases, fearing US sanctions. India could resist US tariffs, but sanctions are harder to ignore for two reasons. First, its refineries and banks now rely on American software, leaving it vulnerable to pressure — as the Nayara Energy case showed — unlike the 1990s when open-source systems like Linux were common. Second, in 1985 India produced 85 per cent of the oil it consumed; today it imports 85 per cent, after years of neglecting exploration. The path forward lies in reviving domestic oil exploration and building sovereign digital infrastructure independent of US control.

The writer is founder, Global Trade Research Initiative