• The U.S. and U.K. have imposed new sanctions on Russian oil producers and shipping vessels, targeting two major Russian oil companies and over 20 oil tankers.
• The sanctions aim to limit Russia’s oil export revenue and disrupt the Kremlin’s energy revenues, pushing up global oil prices and freight costs.
• Chinese and Indian refiners, Russia’s largest oil consumers, are expected to source more oil from the Middle East, Africa and the U.S. to compensate for disrupted Russian supplies.
• With Russian oil supplies constrained, global oil markets are tightening and prices for Middle Eastern crude grades have already risen in recent months.
• Indian refiners may be forced to price Russian crude below $60 per barrel to continue using Western insurance and tankers, leading to increased competition for Middle Eastern and Atlantic Basin crude.

Chinese and Indian refiners are expected to source more oil from the Middle East, Africa and the United States as new American sanctions on Russian producers and shipping vessels disrupt supplies to Moscow’s key customers.

On Jan. 10, the U.S. Department of the Treasury, in coordination with the U.K., implemented new sanctions targeting the Russian oil industry to limit Russia’s oil export revenue. These sanctions specifically target two major Russian oil producers: Gazprom Neft and Surgutneftegaz, along with their subsidiaries, service providers and over 20 oil tankers linked to a “shadow fleet.” The sanctions also extend to more than 180 oil tankers and over 30 oilfield service providers. (Related: U.S. imposes additional sanctions on Russian oil giants to curb revenue from energy exports.)

Additionally, the department gave itself the authority to impose sanctions on anyone found to be operating in Russia’s energy sector.

“The United States is taking sweeping action against Russia’s key source of revenue for funding its brutal and illegal war against Ukraine,” Treasury Secretary Janet Yellen said along with the announcement on Jan. 10. “This action builds on and strengthens our focus since the beginning of the war on disrupting the Kremlin’s energy revenues, including through the G7+ price cap launched in 2022. With today’s actions, we are ratcheting up the sanctions risk associated with Russia’s oil trade, including shipping and financial facilitation in support of Russia’s oil exports.”

The sanctions will significantly impact Russian oil exports, particularly to China and India, two of Russia’s largest oil consumers. In the past year, designated tankers shipped close to 900,000 barrels per day (bpd) of Russian crude to China and about 300 million barrels to India.

“These sanctions will significantly reduce the fleet of ships available to deliver crude from Russia in the short term, pushing freight rates higher,” said Matt Wright, lead freight analyst at Kpler.

With Russian oil supplies constrained, Chinese and Indian refiners are expected to turn to the global oil market for alternative sources. “There is no option than that we have to go for Middle Eastern oil,” said an Indian oil refining official. “Perhaps we may have to go for U.S. oil as well.”

Additional Russian oil sanctions drive prices and freight costs higher

The sanctions are expected to further tighten global oil markets, pushing up prices and freight costs for Middle Eastern, African and Brazilian crude grades higher.

According to industry sources, prices for Middle Eastern grades of oil have already risen in recent months as China and India scrambled for alternative supplies. The sanctions have also prompted Russia to adjust its pricing strategy. A second Indian refining source noted that Russia may be forced to price its crude below $60 per barrel to continue using Western insurance and tankers.

Harry Tchilinguirian, head of research at Onyx Capital Group, predicts that Indian refiners, which are the main buyers of Russian crude, will be “scrambling to find alternatives in Middle Eastern and Dated-Brent related Atlantic Basin crude.”

“Indian refiners, the main takers of Russian crude, are unlikely to wait around to find out and will be scrambling to find alternatives in Middle Eastern and Dated-Brent related Atlantic Basin crude. Strength in the Dubai benchmark can only rise from here as we are likely to see aggressive bidding for February loading cargoes of the likes of Oman or Murban, leading to a tighter Brent/Dubai spread,” he stated.

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Sources include:

Reuters.com

RT.com

Home.Treasury.gov

Brighteon.com