Stricter US sanctions threaten Russia's oil trade with India and China: Report

The new sanctions are likely to severely affect Russia's oil exports, as many tankers previously used for shipments to India and China will now face restrictions.

In Short

• US sanctions to affect Russian oil trade with India, China
• Higher oil prices, freight costs expected for both nations
• Sanctions target major Russian oil firms, 183 ships

New US sanctions on Russian oil producers and ships are expected to disrupt Russia’s oil trade with India and China, two of its largest customers, according to a report by news agency Reuters. This development may lead to higher oil prices and increased freight costs for both countries as they look to source oil from alternative markets.

The US Treasury announced tougher sanctions on Friday, targeting major Russian oil producers Gazprom Neft and Surgutneftegas, as well as 183 ships involved in transporting Russian oil. These measures aim to cut into the revenues Russia uses to fund its war in Ukraine.

The targeted ships played a huge role in shifting Russian oil exports from Europe to Asia after the Group of Seven countries imposed a price cap on Russian oil in 2022. Some of these ships were also used to transport oil from Iran, which is already under US sanctions.

The new sanctions are likely to severely affect Russia’s oil exports, as many tankers previously used for shipments to India and China will now face restrictions. According to industry sources, Chinese independent refiners may be forced to cut their refining output due to supply disruptions.

This development has already pushed global oil prices higher, with Brent crude trading above $81 a barrel on Monday, reaching its highest level in months.

The sanctions cover 143 oil tankers that handled over 530 million barrels of Russian crude last year, amounting to 42% of Russia’s total seaborne oil exports. Of this, approximately 300 million barrels were shipped to China, with the majority of the remainder going to India, according to Kpler’s lead freight analyst, Matt Wright.

A Singapore-based trader told Reuters that these tankers shipped about 900,000 barrels per day (bpd) of Russian crude to China over the past year, warning that this trade could see a significant drop.

India and China have been major buyers of Russian oil, with India’s imports of Russian crude rising by 4.5% year-on-year to 1.764 million bpd for the first 11 months of last year. This accounted for 36% of India’s total oil imports. China’s imports, including pipeline supplies, increased by 2% to 99.09 million metric tonnes (approximately 2.159 million bpd), representing 20% of its total imports during the same period.

While India mainly buys Russia’s Urals crude, China prefers ESPO Blend crude, which is often sold above the G7-imposed price cap. Analysts suggest that if the sanctions are strictly enforced, Russian ESPO Blend crude exports could halt entirely.

The sanctions are expected to push India and China to source oil from other regions, such as the Middle East, Africa, and the Americas. This shift has already led to a rise in spot prices for oil grades from these regions.

An Indian oil refining official said that the country may need to increase its reliance on oil from the Middle East and potentially the US. “There is no option but to go for Middle Eastern oil. Perhaps we may have to go for US oil as well,” the official told Reuters.

Analysts also believe that Russian oil prices may drop below $60 a barrel to allow Moscow to continue using Western insurance and shipping services.

Experts predict that the demand for Middle Eastern oil will intensify as Indian and Chinese refiners seek alternatives. This could lead to a tighter Brent-Dubai price spread, with prices for February-loading cargoes like Oman or Murban oil expected to rise due to aggressive bidding.