A general view shows the oil refinery of the Lukoil company in Volgograd, Russia April 22, 2022. Picture taken April 22, 2022. Picture taken with a drone. / REUTERS/REUTERS PHOTOGRAPHER

U.S. President Donald Trump hit Russia's two biggest oil companies with sanctions in a sharp policy shift on Moscow's war in Ukraine, prompting global oil prices to rise by nearly 5 percent on Oct. 23 and India to consider cutting Russian imports.

The sanctions target oil giants Rosneft and Lukoil, which between them account for more than 5 percent of global oil output, and mark a dramatic U-turn by Trump, who said only last week that he and Russian President Vladimir Putin would soon hold a summit in Budapest to try to end the war in Ukraine.

While the extent of the financial hit on Russia may be limited in the short term, the move is a powerful signal of Trump's intent to squeeze Russia's finances and try to force the Kremlin towards a peace deal.

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Strain on oil revenues

It has already prompted Chinese state oil majors to suspend Russian oil purchases in the short term, trade sources told Reuters. Refiners in India, the largest buyer of seaborne Russian oil, are set to sharply cut their crude imports.

A drop in demand from Russia’s two largest customers will put a strain on Moscow’s oil revenues and force the world’s top importers to seek alternative supplies and push up global prices.

Trump, in his latest about-face on the conflict, said on Oct. 22 that the planned Putin summit was off because it would not achieve the outcome he wanted and complained that his many "good conversations" with Putin did not "go anywhere."

"We cancelled the meeting with President Putin—it just didn't feel right to me," Trump told reporters at the White House. “It didn’t feel like we were going to get to the place we have to get to. So I cancelled it, but we’ll do it in the future.”

Russia called the new U.S. sanctions unproductive and signaled that its conditions for ending its war in Ukraine—terms that Kyiv and many European countries regard as tantamount to surrender—remain unchanged.

The conflict raged on as European Union leaders and Ukrainian President Volodymyr Zelenskiy met in Brussels on Oct. 23 to discuss funding for Ukraine, with momentum building to use frozen Russian assets to provide a 140 billion euro ($163 billion) loan to Kyiv.

Moscow said it would deliver a "painful response" if the assets were seized.

Russia shrugs off impact of sanctions

In another bid to starve Moscow of revenue, the EU also approved a 19th package of sanctions that includes a ban on Russian liquefied natural gas imports. 

The EU has reduced its reliance on once-dominant supplier Russia by roughly 90 percent

 since 2022 but nonetheless imported more than 11 billion euros of Russian energy in the first eight months of this year. LNG now represents the biggest EU import of Russian energy.

The EU also added three Chinese companies to its Russian sanctions list, saying they were significant buyers of Russian crude oil and providing "substantial" revenue to Moscow. Beijing threatened to retaliate with unspecified measures.

Unveiling the oil sanctions, Scott Bessent, the U.S. Treasury Secretary, made clear Washington was targeting Russia's ability to fund what has become Europe's biggest land war since World War Two and was ready to take further action.

Russian oil and gas revenue, currently down by 21 percent year-on-year, accounts for around one quarter of its budget and is the most important source of cash for Moscow's war in Ukraine, now in its fourth year.

However, Moscow's main revenue source comes from taxing output, not exports, which is likely to soften the immediate impact of the sanctions on state finances.

Maria Zakharova, a spokeswoman for the Russian Foreign Ministry, shrugged off the likely impact, saying Moscow had developed what she called a "strong immunity" to such restrictions.

Zelenskiy urges more pressure on Moscow

Ukraine's Zelenskiy thanked the United States for the new sanctions, saying they were "very important," but that more pressure would be needed on Moscow to get it to agree to a ceasefire.

Oil prices jumped 5 percent on Oct. 23 amid worries that the sanctions would disrupt global supply. Indian oil industry sources told Reuters that Indian refiners were poised to sharply curtail imports of Russian oil.

Some analysts say that the new sanctions could force Russia to further discount its oil on world markets to offset the perceived risk of U.S. secondary sanctions, but that pain could in turn be mitigated if global oil prices rise.

After an August summit with Putin in Alaska, Trump dropped his demand for an immediate ceasefire in Ukraine and embraced Moscow's preferred option of going straight to negotiating an overall peace settlement. 

But in recent days he has reverted to the idea of an immediate ceasefire, something that Kyiv supports but which Moscow, whose forces are steadily edging forward on the battlefield, has repeatedly made clear it has no interest in.

Russia has said it opposes a ceasefire because it believes it would only be a temporary pause before fighting resumes, giving Ukraine time and space to rearm at a time when Moscow says it has the initiative on the battlefield.