How US sanctions on Russian oil majors will impact the rouble and economy

Ahead of the deadline, the rouble RUB= was strengthening on reports about a U.S.-drafted plan to end the war in Ukraine, which if implemented, could mean the sanctions are cancelled.

WHAT HAS BEEN HAPPENING ON RUSSIA'S FOREX MARKET?

The market was hit last year by sanctions on Russia's main operator, the Moscow Exchange (MOEX), in June and on Russia's third-largest bank, Gazprombank, in November.

Sanctions on MOEX stopped all exchange trade in dollars and euros. China's yuan, which is still trading on MOEX, has become the dominant foreign currency.

Western currencies are since then traded over the counter through domestic dollar accounts which have no correspondent accounts abroad. The central bank uses quotes from this trade to set its official exchange rates.

The rouble weakened by 37% against the dollar in 2024, with sanctions and Ukraine's attack on Russia's Kursk region seen as the main factors.

The rouble rallied by as much as 45% in the first half of 2025 due to the central bank's interest rate hikes and hopes for a peaceful settlement in Ukraine as U.S. President Donald Trump started talks with Russia.

The rouble has remained stable in the second half of 2025 despite an overwhelming majority of analysts predicting that the currency is overvalued and is set to weaken, with its fair value seen closer to 100 roubles to a dollar.

Economists attributed the rouble's surprise behaviour to slower-than-expected interest rate decreases, the central bank's forex interventions, sluggish imports due to an economic slowdown and the government's policy to promote import substitution.

WHAT IS THE ROLE OF ROSNEFT AND LUKOIL ON THE FOREX MARKET?

The new sanctions block all transactions with the two Russian firms. Lukoil has until December 13 to sell its international assets. A U.S. Treasury official said on Thursday that any company buying Russian oil will also be hit by U.S. sanctions.

Oil companies and other exporters repatriate their foreign currency earnings, now mostly denominated in yuan, back to Russia, and convert them into roubles in order to pay taxes, salaries, and other domestic expenses.

Analysts at Finam, a Russian financial services company, estimated that Rosneft and Lukoil accounted for up to 35% of domestic foreign currency sales. They predicted that overall sales could decline by 10% to 20% in early December.

The central bank is another major player on the currency market, with traders estimating its share at 10%. The central bank has been a net seller of foreign currency, mostly yuan, throughout the year.

Most Russian analysts expect some gradual weakening of the rouble after the sanctions deadline due to reduced forex sales and an expected reduction of the central bank's forex sales from the start of 2026.

REACTION OF CHINA AND INDIA IS KEY

The impact of sanctions will depend on the reaction of banks and companies in China and India, the main buyers of Russian oil, accounting for about 85% of all sales. The Treasury official said that Indian and Chinese refiners are conscious of the sanctions and risk-averse.

The Treasury's Office of Foreign Assets Control said on November 17 that its analysis of the initial market impact showed they "are having their intended effect of dampening Russian revenues by lowering the price of Russian oil".

Russian President Vladimir Putin said on October 23 that the new sanctions have a "serious nature" and may have "certain consequences", but added that they will not have a significant impact on Russia's economic well-being.

Both China and India, Russia's partners in the BRICS group of major developing economies, have been cautious in their dealings with sanctioned Russian entities, fearing punishment from Western financial regulators.

IMPACT ON BUDGET AND ECONOMY

The Russian budget receives its revenues from taxes levied on oil production, not exports.

Although a decline in exports' physical volume due to new sanctions will not result in a decline in budget revenues directly, the widening discount between the Russian and international blends of oil will affect budget revenues.

Reuters calculations showed that the rouble price for Russian oil, used as the basis for tax calculation, was 24% lower in November than the estimates set in the budget, suggesting a further decline in revenues.

In the first 10 months of this year, the budget's oil and gas revenues have fallen by 21% year-on-year. The amended budget for 2025 sees a decline in oil and gas revenues by the same percentage for the entire year.

A weakening of the rouble would inflate the rouble-denominated budget revenues from oil and gas sales, making it an attractive measure to help balance the budget and offset the falling revenues.