The latest U.S. sanctions on Russian oil producers and more than 180 ships transporting oil are expected to severely damage its oil exports.
Traders and analysts say refineries in China and India, Moscow's biggest customers, will buy more oil from the Middle East, Africa and the Americas, a move that will push up prices and freight rates.
this U.S. Treasury imposes new restrictions Russian oil producers on Friday Gazpromneft and Surgut Oil and Gas Companyand 183 ships carrying Russian oil, targeting revenue that Moscow uses to fund its war with Ukraine.
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Many tankers have been used to transport oil to India and China as Western sanctions and price caps imposed by the Group of Seven industrialized nations in 2022 shift Russian oil trade from Europe to Asia. Some tankers are also carrying oil from Iran, which is also under sanctions.
Two Chinese trade sources said the new sanctions will severely damage Russian oil exports, which will force independent Chinese refiners to cut refinery output. The sources declined to be named because they were not authorized to speak to the media.
Supply disruptions in Russia are expected to push global oil prices to their highest levels in months on Monday, with Brent crude heading above $81 a barrel.
Matt Wright, chief cargo analyst at Kpler, said in the report that among the newly sanctioned ships, 143 were oil tankers that handled more than 530 million barrels of Russian crude last year, accounting for about 42% of the country’s total seaborne crude exports.
About 300 million barrels of that were shipped to China, with most of the rest going to India, he added.
“These sanctions will significantly reduce the fleet available to transport crude oil from Russia in the short term, driving up freight rates,” Wright said.
A Singaporean trader said that designated tankers have shipped nearly 900,000 barrels of Russian crude oil to China per day in the past 12 months.
“It's going to fall off a cliff,” he added.
In the first 11 months of last year, India's crude oil imports from Russia increased by 4.5% year-on-year to 1.764 million barrels per day, accounting for 36% of India's total imports. During the same period, China's imports (including pipeline supply) increased by 2% to 99.09 million tons (2.159 million barrels per day), accounting for 20% of its total imports.
China mainly imports Russian ESPO blended crude oil, which sells at prices above the upper limit, while India mainly purchases Urals oil.
Vortexa analyst Emma Li said that if sanctions are strictly enforced, Russian ESPO Blend crude oil exports will be stopped, but this will depend on whether U.S. President-elect Trump lifts the embargo and whether China recognizes the sanctions.
Middle East oil prices have risen
The new sanctions will force China and India to return to compliant oil markets in search of more supplies from the Middle East, Africa and the Americas, sources said.
Spot prices for Middle East, African and Brazilian grades of crude have risen in recent months as supply from Russia and Iran tightens and prices rise, and demand grows from China and India, they added.
“Prices of Middle Eastern grades of oil have increased,” an Indian refining official said.
“We have no choice but to seek Middle Eastern oil. Maybe we have to buy American oil, too.
Another Indian refining industry source said sanctions on Rosneft Insurance Company will prompt Russia to lower crude oil prices below $60 a barrel so that Moscow can continue to use Western insurance and tankers.
Harry Tchilinguirian, head of research at Onyx Capital Group, said: “As a major recipient of Russian crude, Indian refiners are unlikely to wait for answers and will scramble to find alternatives to Middle East and Dated Brent-related Atlantic Basin crudes.
He added: “The strength in the Dubai benchmark can only rise from here as we may see aggressive bidding for February loading cargoes from places such as Oman or Murban, causing the Brent/Dubai spread to tighten.”
Last month, the Biden administration designated more ships to handle Iranian crude, in anticipation of tougher action from the incoming Trump administration. Shandong Port Group Sanctioned oil tankers are banned from docking at ports in China's eastern provinces.
As a result, China, a major buyer of Iranian crude, will also shift to heavier Middle Eastern oil and will likely maximize its purchases of Canadian crude from the Trans Mountain Pipeline (TMX), Tchilinguirian said.
- Reuters Additional editing by Jim Pollard
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