NEW DELHI: Chinese and Indian refiners will source more oil from the Middle East, Africa and the Americas, boosting prices and freight costs, as new US sanctions on Russian producers and ships curb supplies to Moscow’s top customers, traders and analysts said.
The US Treasury on Friday imposed sanctions on Russian oil producers Gazprom Neft and Surgutneftegas, as well as 183 vessels that have shipped Russian oil, targeting the revenues Moscow has used to fund its war with Ukraine.
Many of the tankers have been used to ship oil to India and China as western sanctions and a price cap imposed by the Group of Seven countries in 2022 shifted trade in Russian oil from Europe to Asia. Some tankers have also shipped oil from Iran, which is also under sanctions.
Russian oil exports will be hurt severely by the new sanctions, which will force Chinese independent refiners to cut refining output going forward, two Chinese trade sources said. The sources declined to be named as they are not authorised to speak to media.
Among the newly sanctioned ships, 143 are oil tankers that handled more than 530 million barrels of Russian crude last year, about 42 per cent of the country’s total seaborne crude exports, Kpler’s lead freight analyst Matt Wright said in a note.
Of these, about 300 million barrels was shipped to China while the bulk of the remainder went to India, he added.
“These sanctions will significantly reduce the fleet of ships available to deliver crude from Russia in the short term, pushing freight rates higher,” Wright said.
A Singapore-based trader said the designated tankers shipped close to 900,000 bpd of Russian crude to China over the past 12 months. “It’s going to drop off a cliff,” he added.
For the first 11 months last year, India’s Russian crude imports rose 4.5 per cent on year to 1.764 million bpd, or 36pc of India’s total imports. China’s volume, including pipeline supply, was up 2pc at 99.09 million metric tons (2.159 million bpd), or 20pc of its total imports, over the same period.
China’s imports are mostly Russian ESPO Blend crude, sold above the price cap, while India buys mostly Urals oil.
Vortexa analyst Emma Li said Russian ESPO Blend crude exports would be halted if the sanctions were strictly enforced, but it would depend on whether US President-elect Donald Trump lifted the embargo and also whether China acknowledged the sanctions.
The new sanctions will push China and India back into the compliant oil market to seek more supply from the Middle East, Africa and the Americas, the sources said.
Spot prices for Middle East, Africa and Brazilian grades have already risen in recent months on rising demand from China and India as supplies of Russian and Iranian oil tightened and became more expensive, they added. “Already, prices are rising for Middle Eastern grades,” said an Indian oil refining official.
Published in Dawn, January 13th, 2025