ICIS Whitepaper: Trump peace talks bring further uncertainty over Russian oil and LNG sanctions

The following text is from a white paper published by ICIS called Trump peace talks bring further uncertainty over Russian oil and LNG sanctions.

You can download the pdf version of this paper here.

Written by: Aura Sabadus, Barney Gray, Andreas Schroeder, Rob Songer

As US president Donald Trump pushes for Ukrainian-Russian peace negotiations, it is uncertain whether he might seek to strengthen or unwind some of the sanctions imposed on Russian oil and LNG over the last three years.

Trump has also been pursuing a blend of tariffs and sanctions, complicating an already difficult landscape. This latest ICIS paper proposes to help companies navigate a complex environment, reviewing the impact of new tariffs and existing sanctions on markets, the likelihood that they may be scrapped and asks whether unilateral European sanctions on Russian oil and gas could be just as effective. 

INTRODUCTION

US President Donald Trump’s second term has ushered in a whirlwind of economic measures sparking volatility across markets and shaking the global economy.

Since his return to power at the end of January, US trade policies have focused on a blend of tariffs and sanctions targeting import partners, Canada and Mexico but also political adversaries, Iran and Venezuela.

From this vantage point, his wider economic measures have the potential to spur inflation and a global economic slowdown that could weaken energy demand at a time of surging global oil and gas supply, weighing heavily on prices.

With events unfolding at rapid speed as policies are announced and rolled back within days or even hours, it is becoming increasingly difficult for companies to assess the direction that oil and gas markets will take in the longer-term.

Perhaps the biggest wild card in this unpredictable environment is the US’ position on Russian oil and LNG sanctions.

On 7 March, the US president said he was strongly considering an array of tariffs and sanctions on Russia but many observers do not exclude the possibility of a u-turn on restrictions as Washington has been doubling down on efforts to conclude a peace deal with Moscow over Ukraine.

These sanctions could be eased either during peace negotiations or once the war ends.

SANCTIONS AND LOOPHOLES

Since Russia invaded Ukraine in February 2022, the US together with the EU and the UK imposed over 20,000 sanctions, targeting primarily its oil sector.

Nevertheless, despite the sweeping sanctions, Russia still made close to €1tr in oil and gas sales since the start of the war, as the two account for up to half of Russia’s tax revenues, according to estimates from the Centre for Research on Energy and Clean Air (CREA).

Although the US and the EU introduced limited restrictions on Russian LNG, the country lost most of its European pipeline gas market share after cutting close to 80% of its exports following the invasion of Ukraine.

Following the expiry of the Russian-Ukrainian pipeline gas transit agreement at the beginning of 2025, the Russian share of LNG and gas in Europe is 11%.

Since then, the shortfall has been plugged primarily by the US, which now accounts for nearly a quarter of European gas supplies.

RECORD IMPORTS

In January alone, a record 58% of LNG imported into Europe came from the US, while Russia’s market share including pipeline and LNG exports accounted for 11%, dropping from close to 40% in 2021.

While Europe has become increasingly dependent on the US, the same could be said about the US, as 80% of its LNG exports have been heading to Europe in recent months, according to ICIS data.

With US LNG production set to double in the second half of this decade, unwinding sanctions against Russia’s Arctic LNG2 project would create direct competition to US producers.

In contrast, by removing some of the sanctions on the oil sector, the Trump administration might hope to offset the inflationary effect of tariffs through falling oil prices and greenlight the return of US companies to Russia.

Meanwhile, with the EU and the UK pledging to weaken Russia economically as part of efforts to help Ukraine negotiate from a position of strength, the onus would be on Brussels and London to continue sanctions on their own but that raises questions about their effectiveness.

An EU transshipment ban prohibiting the transfer of Russian LNG via European terminals could have the perverse impact of redirecting these LNG volumes into European markets when it comes in force at the end of this month.

Last year, more than 50% of Russian LNG exports ended up in Europe, which means that with the trans-shipment ban even more volumes could enter the market just as the EU is preparing to announce a roadmap for the scheduled 2027 Russia fossil fuel import phaseout.

TARIFFS

Donald Trump’s administration has had a profound impact on the global crude market in only a few short weeks.

His mix of tariffs on friendly countries and sanctions on adversaries have led to ramped-up volatility and uncertainty with a distinct bearish tinge.

Tariffs against Canada and Mexico announced in February, paused for a month and reintroduced in March only to be suspended again, have sparked fears of a global trade war.

Canada is the US’ largest source of imported crude, representing over 4 million barrels/day or 62% of total imports in 2024. US refiners rely on Canada’s heavier, sour grades for which many US Gulf Coast refiners are specifically adapted to process.

The US has placed a tariff of 10% on Canadian imports, adding more than $5/barrel to the current cost of Canada’s Western Canadian Select export grade. This will adversely impact refiners’ margins and may encourage them to seek replacement barrels from overseas, boosting demand for non-tariffed Middle Eastern or Brazilian grades.

While the majority of Canada’s export pipeline infrastructure is dedicated to serving US customers, Canada is likely to ramp up exports through its Trans Mountain pipeline on the Pacific coast targeting Asian customers. Such a move could compete with Middle Eastern exports to Asia as higher volumes of Canadian grades find their way to South Korea, China and Japan.

US tariffs on Mexican imports are a more punitive 25%, impacting around 465,000 barrels/day. While Mexican imports could dip in the short term, most Mexican production is coastal and offshore, and the country has the option to reroute exports more readily than Canada.

However, with Mexico’s OPEC+ partners starting to return 2.2 million barrels of production cuts to the market over the next 18 months from April, surplus Mexican oil on the global market is likely to pressure prices.

Meanwhile, with OPEC+ seeking to increase monthly production by around 138,000 barrels per day, US sanctions will try to remove supply from Iran.

Iranian production dipped sharply under Trump’s first term only to rally again during president Biden’s tenure to 3.26 million barrels/day in 2024. While US sanctions could pare this back by 1.0 million barrels/day, offsetting global supply gains elsewhere, it is likely that this number is optimistic as consumers in China and India continue to ignore US sanctions on Iran.

The US is likely to be more successful sanctioning Venezuelan imports which currently average around 220,000 barrels/day. Since Trump cancelled Chevron’s license to operate in the country, imports of Venezuelan oil are now likely to cease completely with these barrels competing in the global heavy, sour market.

RUSSIAN SANCTIONS

US president Donald Trump’s tariffs and sanctions policies so far this year have weakened oil prices.

These policies, along with likely increased supply of competing grades from Canada, Mexico and the Middle East, mean medium and heavy-sour benchmark oil prices could weaken even further this year.

One implication is that president Trump may sacrifice the growth of the US oil sector for lower oil prices as a net benefit to the US economy.

Should he also relax sanctions on Russia, the prospect of up to 0.6 million barrels/day of spare capacity hitting the market comes closer to reality, which could tank prices.

What decision the Trump administration takes regarding Russian oil and gas will be pivotal for global markets, determining not only immediate price movements but also the long-term direction of the industry.

Recent diplomatic events suggest the US is sympathetic to Moscow’s cause, as it pushes for an immediate peace deal with Ukraine.

Many observers say that lifting sanctions could be detrimental to US oil and LNG producers and could have major oil price downside.

Since the start of Russia’s full-scale invasion of Ukraine, western partners, including the US, UK and the EU have introduced over 20,000 sanctions against Russia, expecting to dissuade it from pursuing its aggression against Ukraine.

Most of these sanctions target its oil and LNG sectors, which account for more than a third of Russia’s annual revenue. They took the form of either sanctions on production and services, or a price cap designed to limit revenue while not creating global supply imbalances.

These were bolstered by a comprehensive package introduced in the final days of the previous Biden administration, directed at 183 oil tankers, some of which overlap with the 90 vessels blacklisted by the UK and another 80 sanctioned by the EU.

Since the G7 plus Australia introduced a $60/bbl cap on the price for seaborne Russian-origin crude oil, prohibiting service providers in their jurisdictions to enable maritime transportation above that level, Russia has built a shadow fleet of tankers stripped of ownership, management and flagship to help circumvent the restrictions.

It spent over $10 billion in acquiring the vessels and is thought to have earned around $14 billion in sales, according to CREA.

CREA also noted the comprehensive sanctions on oil production might cut up to $20 billion from Russia’s oil and gas revenue forecast of $110 billion this year.

Following tougher US sanctions introduced earlier this year, India and China halted the purchase of Russian oil.  But the effectiveness of sanctions lies not only in their enforcement but also in the perception that they would be imposed.

With Donald Trump driving the US increasingly towards Russia, that perception will be diluted, raising questions about the effectiveness of the sanctions in the longer-term.

LNG SANCTIONS

To date, the most wide-reaching sanctions to be imposed on Russian LNG ships and infrastructure have been through the US treasury.

The most significant European sanctions, clamping down on LNG ship-to-ship (STS) transfers in European ports, come into effect at the end of March and are intended to reduce Russia’s ability to supply its Arctic LNG to markets outside Europe.

However, they could result in increasing European imports of Russian LNG, since less will be able to be exported.

To minimize disruption to the US’s European allies, US treasury sanctions did not target the established 17.4 million tonne per annum (mtpa) Yamal LNG and 10.9mtpa Sakhalin 2 liquefaction plants. Nor did they initially target much Russian shipping, although this soon followed.

HITTING LNG PRODUCTION

Instead, measures were aimed squarely at the 19.8mtpa Arctic LNG2 (ALNG2) liquefaction plant, which was sanctioned before it had loaded a commercial cargo, as were two giant brand-new floating storage units (FSUs), each with a storage capacity of 362,000cbm.

These two FSUs, named Saam and Koryak, were intended to be installed as storage hubs at Murmansk in Europe, and Kamchatka in Asia, respectively, allowing laden Arc7 ice-class vessels to shuttle cargoes away from icy conditions, so they could be reloaded via STS transfers onto more lightly winterised vessels.

In keeping with the theme of sanctions targeting new, rather than existing Russian infrastructure, four newbuilds built by South Korea’s Samsung Heavy Industries (SHI) called North Air, North Way, North Mountain and North Sky were all sanctioned, preventing them from being put to work at the neighbouring Yamal LNG facility.

However, four more vessels also intended to perform this role but arriving slightly later from another South Korean shipyard – Hanwha Ocean – have only recently been delivered. As a result, these four vessels – called North Moon, North Light, North Ocean and North Valley –  managed to escape the last of the Biden-era sanctions and are being used for Yamal LNG STS operations.

The operator of Arctic LNG2 turned to smaller, older vessels to try to circumvent the loading ban, and these vessels – which were characterized by regular changes to their names, flags and byzantine ownership structures – were also sanctioned.

Finally, in January 2025, the outgoing Biden administration slapped sanctions on existing liquefaction plants for the first time, seemingly calculating that their small sizes would not greatly inconvenience buyers. These were the 1.5mtpa Portovaya midscale and 0.66mtpa Vysotsk small-scale liquefaction plants, along with two Russian-owned vessels, the Gazprom-chartered Pskov, since renamed Pearl, and Velikiy Novgorod, which Gazprom used to load Portovaya cargoes.

As it stands, some 15 LNG vessels are the subject of US treasury sanctions, according to ICIS LNG Edge, including Saam and Koryak.

It should also be noted that less specific sanctions targeting technology transfers have also meant that five Arc-7 carriers that were being completed in Russia’s Zvezda shipyards, their hulls having been built in South Korea by SHI, are yet to be commissioned, two years after they were supposed to be delivered. In addition, a further ten SHI hulls have since been cancelled, which will likely slow down future Arctic LNG projects planned by Russia.

Given the Trump administration’s current cordiality to Russia and antagonism towards Ukraine, it seems unlikely at this stage that further sanctions on LNG vessels will be implemented. Instead, it is arguable that existing sanctions now stand more chance of being rolled back.

The sanctioned vessels are as follows:

UNWINDING SANCTIONS?

With the US pivoting towards Russia, there are two questions that will dominate discussions in global oil and gas markets: Will the US unwind the sanctions imposed so far and, if so, can unilateral European sanctions be equally effective?

Alexander Kolyandr, a sanctions specialist and non-resident senior fellow at the Washington-based Center for European Policy Analysis (CEPA) said several conditions must be taken into consideration.

Firstly, with Trump’s tariff policies likely to lead to inflation that would hit both his blue-collar Rust Belt electorate and tech companies in California, lifting some sanctions on Russian oil production could pressure crude prices, offsetting the impact of tariffs, he said.

As steep price falls could hit current and future oil output, such a measure would have to be weighed against the interests of US producers.

Kolyandr said the blacklisting of Russian oil companies Gazprom Neft and Surgutneftegas has a relatively minor impact because their combined production is around one million barrels per day, or less than a tenth of Russian overall production.

More critical are sanctions against the so-called shadow fleet that has been carrying 78% of Russian seaborne crude oil shipments in in 2024, according to a report by the Centre for Research on Energy and Clean Air (CREA).

When EU and UK sanctions are added to those imposed by the US, the number of blacklisted oil tankers increases to 270, around a third of Russia’s shadow fleet.

APPROVAL

Kolyandr said another factor that will determine the unwinding of US sanctions is ease of removal.

“Some sanctions derive from CAATSA (Countering America’s Adversaries Through Sanctions Act), which need Congressional approval and are more difficult to remove and some were introduced through emergency acts, which are easier to unwind,” Kolyandr said.

Although sanctions against Russian LNG are limited in scope, the likelihood of removing them, particularly against the Arctic LNG2 project , is lower as adding more LNG to a production glut that is expected to build up in coming months would hit US producers.

However, it is unlikely the US Office of Foreign Assets Control (OFAC) will seek to expand the scope of sanctions beyond Arctic LNG2 and the smaller Portovaya and Vysotsk to the bigger Yamal LNG and Sakhalin II exports as these would create major disruptions in a global LNG market set to remain tight in the mid-term.

EUROPEAN SANCTIONS

If the US did unwind critical sanctions against Russia’s oil and LNG shadow fleets as well as against oil production, could European measures prove as effective?

Some observers believe that a possible US exit from the G7 price cap would not pose a problem to Europe because most of the Russian oil dodging the cap is exported via EU-controlled chokepoints in the Baltic Sea, giving the bloc leverage to control and enforce the cap.

Russian LNG exports are equally critically dependant on European insurance.

In 2024, 95% of LNG volumes were transported on vessels insured in G7 + countries. More than half of these vessels belonged to UK and Greek companies, making them vulnerable to European leverage, according to CREA.

Ongoing price volatility and tight market conditions expected for the rest of the year will likely leave the EU unable to join the UK in banning Russian LNG imports, at least for the time being.

However, the EU could work with Ukraine to ban remaining land-based oil exports to Hungary, Slovakia and Czechia via the Druzhba pipeline. The expansion of the Transalpine Pipeline from Italy to the Czech Republic could help replace some of the volumes transiting Ukraine.

FINANCIAL MARKETS

To restart Russian oil and gas operations, western companies would need access to markets, where the major global financial centres of the EU and UK could also exert pressure.

On March 13, there were reports that a waiver introduced by former president Joe Biden exempting 12 Russian banks used for oil payments may have lapsed on March 12 without being renewed.

As the waiver lapsed, the May Brent future price fell below $70/bbl but regained some of the lost premium the following day to hover around that level.

Kolyandr said that in the case of Gazprombank, which had received a separate exemption to allow payments from pipeline gas buyers from Turkey, the waiver may still be on for now.

By: Barney Gray, Aura Sabadus, Andreas Schroeder, Rob Songer