Russian Oil Production
Washington’s nine-month pause on new restrictions against Russia came to an end 22 October 2025. President Donald Trump has imposed his first sanctions of his second term – targeting two of Russia’s biggest oil companies, Rosneft and Lukoil, along with their subsidiaries. The move, presented by the White House as a push to “encourage Moscow to agree to a ceasefire,” comes alongside the postponement of an anticipated summit between Trump and President Vladimir Putin in Budapest. In practical terms, sanctioning two more industry giants doesn’t change much. What matters was the political message.
Announced by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) on October 22, 2025, these sanctions mark one of Washington’s strongest efforts to curtail the Kremlin’s oil revenue, which continues to fund its war in Ukraine. The move effectively prohibits U.S. persons and institutions from conducting business with the two firms and blocks their property and interests within U.S. jurisdiction. Because Rosneft and Lukoil together account for roughly half of Russia’s crude oil production and exports, the sanctions represent a major escalation in the economic campaign against Moscow.
Putin described it as an “unfriendly move,” but maintained that it would not have a significant impact on the economy. “No self-respecting country and no self-respecting people ever decides anything under pressure,” he added. Asked about Putin’s reaction, Trump said: “I’m glad he feels that way. That’s good. I’ll let you know about it in six months from now.”
Oil prices jumped 5% on 23 October 2025 after the US slapped sanctions on Russian oil giants Rosneft and Lukoil. President Putin stressed price hikes would inevitably hit the US, and urged President Trump's advisors to "think about whose interests they're actually serving." Russian oil is fungible but indispensable to the global system. Removing it would require displacing hundreds of millions of barrels per year, which would have severe economic repercussions. Lax enforcement keeps the global market functioning and avoids a messy price spike. Western politicians are thus able to accrue political points for being tough on Russia while avoiding pressing too hard. Thus a sort of gray-zone equilibrium becomes the fallback position and system-level instability is avoided.
Sanctions don’t remove the oil from the system but rather reallocate some of the rent away from Russia’s previous customers (and from Russia itself to some extent) toward its sanctions-tolerant new ones. Western consumers indirectly pay higher prices (through tighter markets), thus transferring some of their purchasing power to those who choose to buy the discounted barrels.
Russian oil giant Gazprom Neft expects to set a new record for oil refining in 2025, the company's CEO, Alexander Dyukov, told Sputnik on 24 October 2025."We expect to process more than last year," Dyukov said, adding that "there will be" a record. Although the CEO did not specify the expected volumes, he said that the situation on the Russian fuel market remains stable. Gazprom Neft is not developing any new stabilization measures, Dyukov added. In 2022, Gazprom Neft processed over 41 million tonnes of crude oil. Dyukov said that refining volumes would increase in 2023 and reach a record level in 2024. Later, the company said that oil refining rose by 1.1% in 2024, to 42.9 million tonnes.
The immediate impact of the sanctions is to isolate Russia’s most significant energy producers from the global financial system. Any company or financial intermediary using U.S. dollars or connected to U.S. institutions now faces restrictions if they transact with these two oil giants. Furthermore, foreign buyers of Russian oil could be subject to secondary sanctions if they continue dealings with Rosneft or Lukoil, depending on their exposure to U.S. financial networks. This has created considerable uncertainty in the global oil market, since many refiners and traders that once purchased Russian crude must now decide whether to risk compliance violations or shift to other sources.
For Russia, the challenge lies in maintaining production and exports while its largest companies are effectively blacklisted. The government may try to re-route oil sales through smaller, non-sanctioned domestic producers or through intermediaries and trading firms in friendly countries. However, doing so will increase costs and reduce efficiency, as smaller companies lack the scale, infrastructure, and international relationships of Rosneft and Lukoil. Moscow might also turn to the “shadow fleet” of tankers and shell companies it has already used to evade earlier sanctions, but such workarounds are risky, expensive, and prone to tighter enforcement scrutiny.
For buyers, substitution is theoretically possible but practically difficult. Some customers could seek crude from smaller Russian producers not yet sanctioned, though volumes are limited. Others might replace Russian supplies entirely with oil from the Middle East, Africa, or the United States. Yet each alternative involves trade-offs: refinery compatibility, long-term contracts, shipping logistics, and price differentials all complicate the switch. Buyers accustomed to discounted Russian crude may face higher costs and less favorable delivery terms.
Overall, both Russia and its customers have options to substitute away from the sanctioned companies, but none are seamless. The sanctions are designed precisely to create friction—raising costs, complicating logistics, and constraining revenue flows to the Kremlin. The true effectiveness of this policy will depend on how rigorously the United States enforces secondary sanctions and how quickly Russia can adapt its export networks. In the near term, these measures are expected to disrupt trade flows and tighten certain segments of the global oil market, even as substitution remains possible through less efficient channels.
Russia's oil export revenue jumped some 50% since the beginning of 2022, Bloomberg reported 14 May 2022, citing data from the International Energy Agency (IEA). According to the agency’s monthly market report, Moscow has earned some $20 billion each month this year from sales of crude oil and oil-related products. The earnings growth came despite Western sanctions over Russia’s military operation in Ukraine. As part of these penalties, the US banned all Russian oil imports, the EU and UK announced plans to scrap all purchases of Russian crude by the end of the year, and international oil giants such as Shell and TotalEnergies vowed to stop buying oil from the country.
However, according to the IEA, Russian shipments have only increased – by some 620,000 barrels per day compared to March to 8.1 million in April, returning to their average before the Ukraine crisis and the ensuing sanctions. Due to increased demand, more shipments were directed toward Asia, with China and India claiming supplies that were previously destined to go elsewhere, according to the agency. In addition the EU, despite its stance, has so far remained the largest market for Russian fuel with 43% of the country’s oil exports going to the bloc in April, the IEA said.
Russia seemed unlikely to coordinate with oil cartel OPEC to roll back oil production in order to prop up falling oil prices, the country's energy minister Alexander Novak said on 15 January 2016. In fact, Russia is also set to keep production at record levels - following similar strategies by other oil producing states like Saudi Arabia based on preserving market share against more cost-intensive products like US shale. Oil prices had fallen by more than 70 percent since June 2014. Although the price edged upwards several times in 2015, by January 2016 it had fallen to below $30 per barrel - a far cry from the $90 price tag an oil barrel normally carried over the last decade.
Long term low oil prices will complicate Russian President Vladimir Putin's efforts to maintain domestic political power. Crude oil prices have been in decline since mid-June 2014 and by November 2014 had lost about a third of their value since that time. A balanced budget for Russia depends on an average price of crude oil between $100 and $115 per barrel. But with prices recently falling below $80 and signs that the price may stay low for the foreseeable future, the country may experience shortfalls.
The United States was the world's top producer of petroleum and natural gas hydrocarbons in 2013, surpassing Russia and Saudi Arabia. For the United States and Russia, total petroleum and natural gas hydrocarbon production, in energy content terms, was almost evenly split between petroleum and natural gas. Saudi Arabia's production, on the other hand, heavily favors petroleum. Since 2008, US petroleum production has increased 7 quadrillion Btu, with dramatic growth in Texas and North Dakota. Natural gas production has increased by 3 quadrillion Btu over the same period, with much of this growth coming from the eastern United States.
Comparisons of petroleum and natural gas production across countries are not always easy. Differences in energy content of crude oil, condensates, and natural gas produced throughout these countries make accurate conversions difficult. Total petroleum and natural gas hydrocarbon production estimates for the United States and Russia for 2011 and 2012 were roughly equivalent—within 1 quadrillion Btu of one another. In 2013, however, the production estimates widen out, with the United States outproducing Russia by 5 quadrillion Btu.
Oil - Background
Russia has the seventh largest oil reserves in the world (6% of total), after 5 Middle East Countries (totalling 63%) and Venezuela (7%). Russia's oil exports declined 5.2% year-on-year in January-June to 122.5 million metric tons (897 million barrels), the country's top statistics body said on 19 August 2008. According to the Russian State Statistics Service (Rosstat), oil accounted for 36.4% of Russian exports and 52.3% of fuel and energy product exports in January-June 2008. Rosstat reported on Monday that oil output in Russia declined 0.8% year-on-year in January-July to 283 million metric tons (2.07 bln bbls).Russia had a harsh climate and challenging geology which meant it cannot simply stop wells from pumping oil. Russian wells will just freeze if you stop them. Russia's oil production would in any event plateau sometime around 2010, while exports would inevitably fall. The almost effective absence of growth in production was due both to the low level of capital expenditure in the industry and a deliberate Kremlin policy of not opening hydrocarbon deposits for development. Domestic demand for oil products, particularly gasoline, was rising steadily, with more than 2 million new cars sold in Russia each year. By one estimate, from 2007 to 2011 Russia would reduce the volume of oil exports by an annualized 250,000 bbl/day. By 2012, therefore, Russia's export volume of crude and oil products would be between 1.0 and 1.3 million barrels per day lower than 2007 export volume.
Russia is a major world oil producer, sometimes producing even more than Saudi Arabia. According to the Oil and Gas Journal, Russia has "proven" oil reserves of 60 billion barrels, most of which are located in Western Siberia, between the Ural Mountains and the Central Siberian Plateau. The Society of Petroleum Engineers (SPE) and US Securities and Exchange Commission [SEC] have different methods for measuring oil reserves [Cambridge Energy Research Associates (CERA) recommended on 7 February 2006 that the US Securities and Exchange Commission adopt SPE's reserves definitions]. The Russians use a system of measuring reserves that are grossly exaggerated by these international standards, because they are based on a maximum theoretical recovery, rather than economical recovery and oil prices. The Russian government does not release oil reserve estimates, although they do speak of "prognosed reserves" of 44 billion tonnes (322 billion barrels) in their latest version of the Energy strategy for the period up to 2020.
During 2006, Russia produced roughly 9.8 million bbl/d of liquids (not including oil products), consumed roughly 2.8 million bbl/d in liquids, and exported (in net) around 7 million bbl/d. According to official Russian statistics, roughly 4 million of this total is crude oil. Over 70 percent of Russian crude oil production is exported, while the remaining 30 percent is refined locally. Crude oil exports via pipeline fall under the exclusive jurisdiction of Russia's state-owned pipeline monopoly, Transneft. The majority of Russia's oil exports transit via Transneft-controlled pipelines, but around 300,000 bbl/d of oil is transported via other non-Transneft-controlled sea routes or via rail.
During 2006, Russia exported almost 4 million bbl/d of crude oil, and over 2 million bbl/d (102 million tonnes) of oil products. Expanding Russia's capacity to export oil in order to keep pace with the country's growing production is important to both Russian policymakers and oil companies. However, the two sides are sometimes at odds over how best to boost the country's export capacity.
In the 1980s, the Western Siberia region, also known as the "Russian Core," made the Soviet Union a major world oil producer, allowing for peak production of 12.5 million barrels per day in total liquids in 1988. Following the collapse of the Soviet Union in 1991, Russia's oil production fell precipitously, reaching a low of roughly 6 million bbl/d, or around one-half of the Soviet-era peak. According to observers, several other factors are thought to have caused the decline, including the depletion of the country's largest fields due to state-mandated production surges and the lack of investment in field maintenance.
A turnaround in Russian oil output began in 1999. Many analysts attribute the rebound in production to the privatization of the industry following the collapse of the Soviet Union. The privatization clarified incentives and increased less expensive production. Higher world oil prices (oil prices tripled between January 1999 and September 2000), the use of technology that was standard practice in the West, and the rejuvenation of old oil fields also helped raise production levels. Other experts partially attribute the increase to after-effects of the 1998 financial crisis, the fall in oil prices, and the subsequent devaluation of the ruble.
In upcoming years, total Russian oil production was expected to grow at an annual rate of around 1.5-2.5 percent, partially due to growth in output from the Sakhalin projects. Government taxation of production and export revenues along with the continued lack of clarity concerning the ownership of subsoil resources contributed to lower output for 2006.
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