New US sanctions on Russian oil producers and vessels are set to disrupt supplies to China and India, forcing refiners in both countries to seek alternatives from the Middle East, Africa, and the Americas. This shift will drive up oil prices and increase freight costs. The US Treasury recently imposed sanctions on Russian oil giants Gazprom Neft and Surgutneftegas, along with 183 vessels involved in transporting Russian oil, targeting the revenue streams supporting Russia’s war with Ukraine.
These tankers have been key in delivering oil to China and India, particularly after Western sanctions and a 2022 price cap led to a shift in Russian oil trade from Europe to Asia. Some of these tankers have also been used to transport oil from Iran, which is similarly under sanctions.
The new sanctions will have a significant impact on Russian oil exports, particularly affecting Chinese independent refiners who may be forced to reduce their refining output. According to Kpler’s Matt Wright, 143 of the sanctioned vessels carried over 530 million barrels of Russian crude last year, accounting for 42% of Russia’s total seaborne oil exports. Of that, around 300 million barrels were sent to China, with the rest to India.
These sanctions will cut the fleet of available tankers, pushing up freight rates. A trader from Singapore predicted that deliveries of Russian crude to China would decline sharply, with daily shipments dropping by nearly 900,000 barrels.
In 2023, India increased its imports of Russian crude by 4.5%, amounting to 1.764 million barrels per day, or 36% of its total oil imports. China’s imports, including pipeline supply, rose 2% to 99.09 million metric tonnes, or 2.159 million barrels per day. China primarily imports Russian ESPO Blend crude, while India buys Urals oil. If the sanctions are strictly enforced, exports of Russian ESPO Blend crude may stop, depending on the US administration’s stance and whether China acknowledges the sanctions.
As a result of these disruptions, China and India will likely turn to the Middle East, Africa, and the Americas for additional oil supplies. Already, spot prices for oil from these regions have risen due to growing demand as Russian and Iranian oil supplies become more costly and scarce.
An official from an Indian oil refinery stated that with no other options, the country will be forced to purchase oil from the Middle East, and possibly from the US as well. Meanwhile, the sanctions on Russian oil insurers may compel Russia to price its crude below $60 per barrel to continue using Western insurance and tankers.
Experts predict that Indian refiners will quickly look for alternatives in the Middle East and other parts of the Atlantic Basin. This could lead to higher demand for Middle Eastern crude, especially from Oman and Murban, which could further tighten the Brent/Dubai price spread. Additionally, China, the largest importer of Iranian crude, may turn to heavier Middle Eastern oil or increase its imports of Canadian crude from the Trans-Mountain pipeline to offset the loss of Russian supply.
