The latest US sanctions targeting Russian oil producers and tankers are expected to significantly disrupt global oil trade, forcing China and India to pivot toward suppliers in the Middle East, Africa, and the Americas, traders and analysts said.
On Friday, the US Treasury imposed sanctions on Russian oil companies Gazprom Neft and Surgutneftegas, alongside 183 vessels that have shipped Russian crude. These sanctions aim to curb revenue streams funding Russia’s war in Ukraine, but they also risk reshaping global oil supply dynamics.
Key Impacts of the Sanctions:
- Reduced Russian Oil Exports:
- About 42% of Russia’s seaborne crude exports in 2023, amounting to over 530 million barrels, were shipped by the newly sanctioned tankers.
- Nearly 300 million barrels of this total went to China, while most of the remainder was sent to India, according to freight analyst Matt Wright of Kpler.
- Higher Oil Prices:
- The expected supply disruption has already driven Brent crude prices above $81 per barrel, their highest level in months.
- Impact on Refiners:
- Chinese independent refiners, major buyers of Russian crude, are expected to reduce refining output.
- Indian refiners, heavily reliant on Russian Urals crude, are now exploring other options, including oil from the Middle East, Africa, and potentially the United States.
Shifting Trade Dynamics
- China:
- China’s Russian crude imports, dominated by ESPO Blend crude, may halt if sanctions are strictly enforced.
- Beijing is also expected to increase imports of heavier Middle Eastern crude and Canadian oil via the Trans-Mountain pipeline (TMX).
- India:
- Russian crude accounted for 36% of India’s imports in 2023, but new sanctions on Russian insurers may pressure Moscow to sell crude below $60 per barrel to retain market share.
- Indian refiners are now turning to Middle Eastern grades and Atlantic Basin crude, which are expected to see heightened demand and higher prices.
Analyst Insights
Harry Tchilinguirian, head of research at Onyx Capital Group, noted that Indian refiners are unlikely to delay finding alternatives. “Strength in the Dubai benchmark will rise as refiners scramble for Middle Eastern oil,” he said, predicting a tighter Brent/Dubai spread.
Additionally, spot prices for Middle Eastern, African, and Brazilian oil grades are climbing due to increased demand and tightening supplies of Russian and Iranian crude.
Broader Implications
The sanctions, coupled with earlier Western price caps, are poised to further shift global energy trade, boosting freight costs and strengthening the position of Middle Eastern oil in Asia’s energy mix. With US President-elect Donald Trump’s policies still uncertain, geopolitical factors will remain critical in shaping future oil trade dynamics.
