The United States has imposed new sanctions on Russian oil companies and tankers, aimed at reducing the amount of oil Russia can sell to its top customers, China and India. These sanctions are part of ongoing efforts to limit Russia’s ability to finance its war in Ukraine. The US Treasury has targeted key Russian oil producers like Gazprom Neft and Surgutneftegas, as well as 183 vessels that have been used to ship Russian oil to countries like China and India.
Among these sanctioned ships, 143 were oil tankers that carried over 530 million barrels of Russian crude last year, accounting for around 42% of Russia’s total oil exports by sea. A large portion of this oil went to China, with the rest shipped to India. The sanctions now put pressure on these countries, which have relied on Russian oil for their energy needs.
Disruption to Oil Supplies
The sanctions are expected to disrupt the flow of Russian oil to China and India. These two countries have been major buyers of Russian crude, especially since Western sanctions and the price cap on Russian oil started in 2022. Russia shifted its focus from Europe to Asia, selling oil mainly to China and India. But with the new US sanctions, many of the ships that have been transporting Russian oil will no longer be available. This could result in shortages of Russian crude in these countries, which rely heavily on it for their refineries.
For example, China imports a large amount of Russian oil called ESPO Blend, while India buys mostly Urals oil. These imports will now be more complicated to maintain. In fact, some analysts believe Russian exports of ESPO Blend crude could stop entirely if the sanctions are strictly enforced.
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This drop in Russian oil supplies could have a major impact on the global oil market. Oil prices surged to their highest in months after news of the sanctions broke. Brent crude, one of the main international oil benchmarks, rose above $81 a barrel. The shortage of Russian oil will likely increase shipping costs too, as fewer tankers will be available to transport crude.
China and India Seek Alternative Sources of Oil
As Russian oil becomes harder to obtain, China and India will have to find other places to buy oil. These two countries are expected to turn to other major oil producers like the Middle East, Africa, and the Americas to meet their energy needs. Already, prices for oil from these regions have been rising as demand from China and India increases. Middle Eastern oil, in particular, is seeing higher prices because China and India need to buy more from there to replace the Russian oil they are losing.
Some traders even suggest that India may turn to oil from the United States. This would be a significant shift because the US is not usually one of India’s main suppliers of oil. However, with fewer Russian tankers available, it might be the best option for Indian refiners.
The new sanctions could also have an effect on how Russia prices its oil. Russian oil is typically sold at a discount, but the sanctions on tankers and insurers could force Russia to lower its prices even further to continue using Western services. This might help Russia maintain some level of oil exports, but it won’t be easy for China and India to replace their Russian supplies.
In addition to the sanctions on Russian oil, the United States has also been targeting ships involved in the trade of Iranian oil. This makes it harder for China, which is the largest buyer of Iranian crude, to get oil from Iran. As a result, China may turn to other sources of heavy oil, like those from the Middle East and Canada. This could lead to even more competition for oil in an already tight global market.
