3 Myths Preventing the West from Sanctioning Russian Energy

Amidst massive AI-driven energy demand projections, reversals from renewable energies to fossil fuels, and mounting geopolitical tensions across the globe, energy costs are skyrocketing.

Through this tumult, three myths pervade the global energy market, misleading everyone—from diplomats and military strategists, to economists and tech titans, to CEOs and consumers—about the state of global dependence on Russian energy supply. The real issue is Russia’s significant economic dependence on selling that energy to fund their war against Ukraine. As we have documented, Russian President Vladimir Putin needs to sell Russian oil and gas more than anyone needs to buy it.

These myths are:

• Myth #1: Trump’s tariff warfare with India is the best way to limit the purchasing of Russian energy
• Myth #2: The European Union has been liberated from the Russian energy machine 
• Myth #3: Trump’s “drill-baby-drill” philosophy has been a boon for the U.S. energy industry

Such illusions have made it difficult for decision makers to accurately estimate how much longer Russia can sustain its war of aggression against Ukraine. Oil and gas sales make up more than 60% of Russian export revenues. However, this crucial source of income has come under increased pressure as crude oil prices have fallen by more than 15% in the past year, severely straining the Russian federal budget.

Even the unreliable unverified Russian government economic statistics already project a budget deficit of -1.7% of GDP for 2025. But those estimates are notably based on a price of $70 per barrel. In reality, Russian oil is currently trading at $54 per barrel—23% less than Russia’s forecasts. 

In addition to rampant inflation, goods shortages, and a crumbling labor market, the liquid reserves held in Russia’s National Wealth Fund continue to decline precipitously, down to approximately $35 billion from $117 billion three years ago. Surplus oil revenues have historically replenished the fund, but they are nonexistent in the war-fueled economy. 

As the economic pressures mount, it becomes crucial to dispel these three key misconceptions about global energy trends to better understand—and limit—Russia's ability to finance its war effort. 

Trump will not solve India’s energy trade with Russia through tariffs

President Donald Trump continued to berate Indian Prime Minister Narendra Modi on Sunday after conflicting reports surfaced over whether the country would keep purchasing Russian oil. The president surprised many last week by announcing that an agreement with India had been reached to stop its buying of Russian crude oil. Among the surprised were Modi and his cabinet officials, who quickly denied that any pact had been made. Trump responded as expected—with a threat of “massive tariffs” if the South Asian nation continues to support Putin's war efforts.

The public back-and-forth between the two does not benefit Trump Administration negotiators in their talks with India, which has long operated under a foreign policy of strategic autonomy. The president’s bigger blunder, though, is the conflation of economic trade relations with international military conflict—that is, blending his protectionist tariff tactics with the Russian wartime sanctions program. 

Trump is right to press India over its purchase of Russian energy. However, the tool chosen to inflict punishment is wrong, as is his desired outcome. The problem is not that India buys oil from Russia—global demand cannot comfortably live without the over nine million barrels per day produced by the Putin regime—but rather the price India is paying for that oil. 

India sources over one-third of its oil from Russia, nearly two million barrels per day, accounting for 40% of Russian crude oil exports, only slightly behind China. But India has largely ignored Western sanctions capping the price of Russian oil. While Prime Minister Modi is at fault for permitting the illegal transactions, the blame also lies with the E.U., U.K., U.S.—under both the Biden and Trump Administrations—and the other G7 nations, who could have done a better job of enforcing sanctions. 

Furthermore, since the global oil benchmark, Brent fell below $65 in April, the E.U. and the U.K. have adjusted their price cap mechanism to float at 15% below the international benchmark, setting the cap at $47.60. The new rate significantly reduces the profit Russia can generate from oil exports. Although not yet adopted by the Trump Administration, the floating cap has increased the discount demanded for transacting with Putin’s oligarchs, from $3 to $10 per barrel below Brent, due to the perceived greater risk of importing Russian oil. 

Perceptions may have shifted, but this will only be temporary unless the new cap is enforced, which is impossible without U.S. support. Instead of simply adopting the revised pricing mechanism, Trump has tried to use the India-Russia energy issue as leverage in his tariff negotiations with Modi. The pairing indicates the president is eager to reach a trade agreement with India. Still, he will be disappointed to learn that publicly pressuring the Indians is a sure way to make negotiations more challenging. 

The E.U. still has a Russian gas problem

In his apparent preference for tariffs as a means of leverage, Trump overlooks an opportunity to intensify pressure on the E.U. bloc to cease purchasing Russian natural gas and to utilize the frozen Russian assets in support of Ukraine’s defense.

While the E.U. has significantly reduced Russian oil imports, it still purchases over 50% of all Russian liquefied natural gas and more than one-third of pipeline gas, funneling €11 billion to Putin's war machine in 2025 alone. Moreover, France and the Netherlands are heading in the wrong direction. The former increased their imports by 40% from a year earlier, while the latter rose by 72%. Paradoxically, France derives fully 70% of its electricity from nuclear energy, due its long-standing policy based on energy security. The E.U. recently banned the import of Russian gas by the end of 2027, but that is 26 months too long. 

Meanwhile, the European Commission slow-walks the release of €140 billion in frozen Russian assets that could improve Ukrainian war prospects. 

Trump‘s “Drill Baby Drill” campaign slogan has lost its power

After “Make America Great Again,” “Drill Baby Drill” may have been the most popular mantra of the 2024 Trump campaign and turns out not to be the answer after all.  The president has promised to “unleash American energy” by developing “the liquid gold that is right under our feet.” The energy industry was abuzz with enthusiasm for the potential his second term promised. Unfortunately, those promises have not materialized as expected. 

The Dallas Federal Reserve’s September Energy Survey noted that the energy business activity index, the broadest measure of energy firm conditions, remained clearly in negative territory. Exploration and production companies experienced cost surges and jumps in lease operating expenses, while all cost metrics stayed above historical averages. Plus, the company outlook index deteriorated sharply, indicating an increasingly negative sentiment about future conditions. 

The U.S. is producing a record high 13.6 million barrels of oil per day, but the pain highlighted in the Fed survey is evident in the national drilling rig count, which is down 13% from one year ago. Behind the rig count is a months-long trend of weak oil prices, the lowest since the depths of COVID. And the price environment does not seem to be improving either. The International Energy Agency estimates that 2025 will record a surplus in oil of 3.5 million barrels per day, led by increased output from the OPEC+ cartel. By 2026, the agency anticipates the surplus swelling to 4 million barrels, again mainly driven by OPEC+, with the U.S., Canada, and other countries making modest contributions.

After gutting American renewable energy investment—and with U.S. producers struggling amid low prices and rising costs—Trump’s ”Drill Baby Drill” rhetoric does not guarantee sustained American energy dominance. Maintaining a healthy, resilient domestic energy market would put Trump in a position of strength, whether confronting Russia, India, or the European Union.