Impact on Russia after the US closes important financial channel for the energy industry

According to the Kyiv Independent newspaper, the administration of US President Donald Trump has taken an important step in its strategy to put pressure on Russia by ending the exemption under which Russian banks are allowed to use the US payment system to trade energy.

The move marks a significant change in how Washington imposes economic costs on Moscow over the conflict in Ukraine and could have far-reaching consequences for the Russian economy.

Close important financial channels

Under a license issued by the Biden administration in the wake of the conflict in Ukraine, some Russian banks, notably Gazprombank, continue to accept energy payments in US dollars.

The original aim was to prevent a spike in energy prices and avoid an energy crisis in countries dependent on Russian energy while maintaining sanctions pressure on the Russian financial system. However, the license’s expiration date was shortened to March 12.

Commenting on the sanctions, Professor, Doctor of Economic Sciences Ihor Burakovsky, head of the Board of Directors of the Institute for Economic Research and Policy Consulting based in Ukraine, said: "Oil and gas are a key sector of the Russian economy - the country's main source of export revenue. Any restrictions that complicate countries' access to the international financial system cause serious problems for their economies."

Impact on Russia's oil income

Experts point out that the new payment restrictions are significantly weakening the Russian economy by making it more difficult to export energy. “This makes it harder for Russia to get paid for its energy,” said James Angel, an associate professor at Georgetown Business School. “It makes it harder for them to keep fighting in Ukraine.”

Previously, foreign buyers paid in euros or dollars into special accounts at Gazprombank, which were then converted to rubles to comply with the requirement to “pay in rubles” for Russian gas. This process has now been severely hampered. “The banking sector and access to international finance are now the Achilles heel of the Russian economy,” Professor Burakovsky stressed.

Russia's countermeasures

Despite the severe impact, Russia still has some options to deal with the new sanctions. Professor Burakovsky noted that Russia can find ways to circumvent sanctions and has developed many methods to overcome previous barriers. One example is that Russia has a fleet of about 800 ships to transport oil despite Western restrictions.

Russia is also being forced to look for alternative payment channels. According to Dr. Burakovsky, Russia can use informal payment channels or make payments in national currencies, especially with major partners such as India and China. "Since the Indian rupee is not a freely convertible currency, it is difficult to take it out of India. This creates a situation where Russia supplies oil to certain countries but the money stays there," Mr. Burakovsky explained.

Additionally, Russia has also started using cryptocurrencies in oil transactions with China and India to circumvent sanctions.

The new decision comes amid a complicated US-Russia relationship and efforts to negotiate peace in Ukraine. Although President Trump is seeking to negotiate a quick end to the fighting, the new sanctions show that the US administration is still willing to use economic measures to pressure Moscow to agree to Washington's terms.

This may explain Russia's demand for sanctions on oil exports to be lifted as part of any ceasefire in Ukraine.