U.S. Imposes Stricter Sanctions to Block Russian Oil Flow to China and India

U.S. Imposes Stricter Sanctions to Block Russian Oil Flow to China and India

NEW DELHI/SINGAPORE, Jan 12—Chinese and Indian oil refiners will increase their purchases from the Middle East, Africa, and the Americas, likely raising prices and shipping costs. According to traders and analysts, this change comes as new U.S. sanctions against Russian oil producers and vessels limit supplies to Moscow’s main buyers.

On Friday, the U.S. Treasury imposed sanctions on Russian oil companies Gazprom Neft and Surgutneftegas and on 183 ships that have transported Russian oil, aiming to reduce the funds Moscow uses to support its conflict in Ukraine. Numerous tankers have been utilized to transport oil to India and China since Western sanctions and a price cap set by the Group of Seven nations in 2022 have diverted Russian oil trade from Europe to Asia. Some of the ships have also carried oil from Iran, which is also under sanctions.

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According to two unnamed Chinese trade sources who are not authorized to speak with the media, the new sanctions are expected to significantly impact Russian oil exports, leading Chinese independent refiners to decrease their refining activities in the future. Out of the newly sanctioned vessels, 143 are oil tankers that transported over 530 million barrels of Russian crude in the previous year, accounting for approximately 42% of the country’s total seaborne crude exports, according to freight analyst Matt Wright.

Of this total, about 300 million barrels were sent to China, while most of the rest was delivered to India, he stated.

“These sanctions will considerably decrease the number of ships available to transport crude from Russia in the near term, resulting in higher freight rates,” Wright noted. A trader based in Singapore mentioned that the designated tankers exported nearly 900,000 barrels per day (bpd) of Russian crude to China over the past year. “It’s going to drop off dramatically,” he remarked.

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For the first 11 months of last year, India’s imports of Russian crude rose by 4.5% year-on-year to 1.764 million bpd, making up 36% of the country’s total imports. China’s figures, including pipeline supplies, increased by 2% to 99.09 million metric tons (or 2.159 million bpd), or 20% of its overall imports during the same period. China primarily imports Russian ESPO Blend crude, sold above the price cap, while India mainly purchases Urals oil.

Vortexa analyst Emma Li stated that exports of Russian ESPO Blend crude would cease if the sanctions were rigorously enforced, but the outcome would depend on whether U.S. President-elect Donald Trump decides to lift the embargo and whether China recognizes the sanctions.

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ALTERNATIVES

According to sources, the recent sanctions will drive China and India back to the compliant oil market in search of additional supplies from the Middle East, Africa, and the Americas. Spot prices for grades from the Middle East, Africa, and Brazil have increased in recent months due to heightened demand from China and India as the availability of Russian and Iranian oil has diminished and become pricier, they noted. “Prices for Middle Eastern grades are already on the rise,” stated an official from an Indian oil refinery. “We have no choice but to turn to Middle Eastern oil. We might also need to consider U.S. oil.” A second source from an Indian refinery mentioned that sanctions on Russian oil insurers will likely force Russia to price its crude below $60 a barrel, allowing it to continue utilizing Western insurance and tankers. Harry Tchilinguirian, head of research at Onyx Capital Group, remarked, “Indian refiners, who are the primary buyers of Russian crude, will likely not delay and will be actively searching for alternatives in Middle Eastern and Dated-Brent related Atlantic crude. The strength of the Dubai benchmark is expected to increase from this point, as we are likely to see competitive bidding for cargoes scheduled for February from sources like Oman or Murban, which will tighten the Brent/Dubai spread,” he added. Last month, the Biden administration designated additional ships involved with Iranian crude in anticipation of stricter measures expected from the incoming Trump administration, prompting the Shandong Port Group to prohibit sanctioned tankers from docking at its ports in the eastern province of China. Consequently, China, the primary purchaser of Iranian crude, will pivot towards heavier Middle Eastern oil and will likely maximize its Canadian crude intake through the Trans-Mountain pipeline (TMX), according to Tchilinguirian.