A Licence Signed Before the Ink Was Dry
On 9 October, three weeks after Donald Trump signed the most sweeping Russia sanctions statute of his presidency, the Treasury’s Office of Foreign Assets Control (the agency that writes and enforces US sanctions) issued General License 135. The licence allows Russian-origin diesel to be sold, shipped and imported into the United States until 7 April 2027.
Most coverage treated the licence as a contradiction of the new law. It is the law working as designed. The Lindsey O. Graham Sanctioning Russia and Iran Act gives the president a national-interest waiver over almost every mandatory measure it contains, and the diesel licence is the first public sign of how that waiver will be used. When the Act’s 30-day deadline arrives on 19 October, the question will not be how hard Washington hits Russia. It will be who gets spared, and why.
Mandatory on Paper, Optional in Practice
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The Act, signed on 18 September, does three things that matter for business. First, it requires blocking sanctions on Sberbank, VTB, Gazprombank and other state-owned Russian banks, and it exposes foreign banks that do “significant transactions” with them to secondary sanctions. Second, it orders designations of vessels carrying Russian energy, along with their owners, insurers and the ports that service them. Third, under Section 113, it authorises tariffs of up to 100% on all goods from countries that are among the five largest importers of Russian crude or gas and keep buying after the deadline, or that are among the top five hubs for sanctions evasion.
The statute names no countries. Senate aides’ indicative crude list is China, India, Slovakia, Hungary and Azerbaijan, and some assessments add Turkey. Every one of these measures can be switched off under Section 115 with a written certification to Congress that doing so serves the national interest. That is a reporting requirement, not a veto.
Sanctions That Cost American Voters Nothing
The useful way to read 19 October is as a cost sort. Washington will enforce the Act where the price falls on Russia, and waive it where the price would fall on American fuel buyers. US diesel averaged $6.51 a gallon last week, nearly double a year ago, and retail diesel is up about 70% since the Iran war began. Farm-state Senate seats that Republicans assumed were safe are now competitive. Iowa’s open seat polls as a toss-up, and Republicans are pouring late money into Kansas and Nebraska. Diesel is what moves combines and lorries, and three weeks before the 3 November midterms, it is the variable the White House is optimising.
Apply that filter and the map draws itself.
Most likely to be hit: Russian state banks and the shadow fleet. Sanctioning Sberbank and VTB costs American consumers nothing, because they have been largely cut off from the US financial system since 2022. Vessel designations are similarly cheap and highly visible. Expect a substantial list on or near the deadline, because the administration needs something to show the bipartisan coalition that is already attacking the diesel deal. The fine print matters, though. In August, 61% of Russian crude moved on already-sanctioned shadow tankers, but 72% of Russian oil products moved on Western-owned or Western-insured ships. Designations aimed at crude carriers hurt Moscow. Designations aimed at product tankers would undo GL 135, so they are unlikely.
Most likely to be spared: China and the diesel trade. China has taken about half of Russia’s crude exports since late 2022 and is the most obvious Section 113 target. It is also the country Washington just extended a trade truce with, running to January, after Xi’s first state visit in 11 years. A 100% tariff on $308.7bn of annual imports weeks before an election would be inflationary self-harm. Expect a waiver framed as “ongoing negotiations”.
The real test: India. India is where the cost sort gets hard, and where this argument departs from the consensus. Most analysts see India as the obvious target: Russian crude reached a record 50.8% of its imports in July, despite New Delhi’s February pledge to halt Russian purchases in exchange for a tariff cut to 18%. But India is also a diesel refinery for the West. Indian, Turkish and other refineries running Russian crude shipped €510m of oil products to sanctioning countries in August, €143m of it to the United States. Penalising India’s crude purchases now would cut diesel supply to the very market the White House is trying to calm. So the Section 113 tariff will be used as leverage over a trade deal Indian officials call “99 percent” done, not as a penalty.
The European edge cases. Hungary and Slovakia still take Russian crude through the Druzhba pipeline, and the Act’s carve-out covers only gas. Budapest’s new government is lobbying Congress for relief before Orbán’s old one-year exemption expires on 21 November. European firms face a mirror-image problem. Brussels is tightening its own regime, which MD has tracked in Europe’s record Russia blacklist, while Washington licenses the trade Europe bans. A shipper can now be compliant in New York and in breach in Rotterdam on the same voyage.
The strongest objection is that Congress wrote the law precisely to tie the president’s hands, with a veto-proof bipartisan majority behind it. If the White House waives too much, the argument goes, Congress will force enforcement. That is true in principle and weak in timing. Section 115 waivers require a certification and a report, not congressional consent. Members are campaigning until November. And the waiver only needs to hold for three weeks. Daniel Fried, a former US sanctions coordinator, put the risk plainly before the Act passed: the danger was never abuse but waivers and little use of the tough provisions. The diesel licence suggests he was right. The real enforcement decision has been deferred to after 3 November and the first 180-day review, when the trade-off shifts.
Three Ways 19 October Can Go
Base case: hard on Moscow, soft on markets (about 60%). Treasury designates the Russian state banks, sanctions a large batch of crude-carrying shadow tankers, and touts it as the biggest Russia action of the year. No Section 113 tariff takes effect. China is waived under the truce, and India and Hungary receive “negotiation” notices instead of duties. GL 135 stays in place. This rests on one assumption: diesel stays above $6 through polling day. For compliance teams, the risk falls on shipowners and insurers of crude cargoes, not on importers in buyer countries.
Downside case: India pays for the diesel deal (about 25%). Stung by the bipartisan backlash and by Trump’s own call for Ukraine to replace Zelensky, which turned the diesel licence into a political liability, the White House sends Congress the required 10-day notice and names India at a token rate, perhaps 10–25%, to show it is serious. The trigger would be the Fitzpatrick bill gaining Republican co-sponsors. Indian exporters of pharmaceuticals, textiles and auto parts would face duties stacked on top of existing tariffs, and Indian refiners would cut Russian intake, tightening global diesel just as winter demand peaks. Few readers are pricing this in, because it looks irrational. It becomes rational only if the White House calculates that seeming soft on Russia now costs more votes than diesel does.
Alternative case: Congress takes the pen (about 15%). Republican senators in exposed farm states break publicly with the diesel deal. Treasury narrows GL 135 to volumes already contracted and lets it lapse early, and the first 180-day review becomes a genuine enforcement event. This would turn the Act from a menu back into a mandate, the outcome its authors intended, but it needs Congress to act against the president’s fuel policy in an election season.
Probabilities reflect the author’s analytical judgment based on currently available information and are not statistical forecasts.
Read the Notices, Not the Statute
The Graham Act will be remembered less for what it mandated than for what it allowed the president to waive. On 19 October, Washington will sanction where sanctions are cheap, in Russian banks and crude tankers, and waive where they are expensive, in diesel, Chinese trade and the Indian refineries that turn Russian crude into fuel for American farms. Moscow’s behaviour barely enters the calculation.
The signal to watch is procedural. Section 113 requires a written justification to Congress at least 10 days before any tariff is imposed. If no such notice has been filed, no secondary tariff can lawfully land on the deadline, whatever the headlines say. The first Section 115 certifications filed the same week will tell you who was spared by name.
Congress wrote a sanctions law about Russia. The White House is enforcing a fuel policy about Iowa.
