New U.S. sanctions targeting Russian oil producers and tankers are expected to significantly alter global oil trade patterns, forcing major buyers China and India to turn to alternative suppliers in the Middle East, Africa, and the Americas. The move is likely to drive up oil prices and freight costs, industry experts and analysts say.
The U.S. Treasury announced sanctions on Friday against Russian oil majors Gazprom Neft and Surgutneftegas, along with 183 vessels that have transported Russian oil. The sanctions aim to restrict revenues funding Moscow’s war in Ukraine.
The newly sanctioned vessels, including 143 oil tankers, handled over 530 million barrels of Russian crude in 2023, representing approximately 42% of Russia’s total seaborne crude exports, according to Kpler analyst Matt Wright. Of this, around 300 million barrels were shipped to China, with much of the remainder destined for India.
“These sanctions will drastically reduce the fleet available for Russian crude shipments in the short term, driving up freight rates,” Wright noted.
Impact on Refiners and Exports
Chinese and Indian refiners, two of Russia’s largest oil customers, are now facing supply disruptions. Independent refiners in China are expected to cut output as the sanctions take effect, according to two Chinese trade sources who requested anonymity.
India, which imported an average of 1.764 million barrels per day (bpd) of Russian crude in the first 11 months of 2023—36% of its total imports—will also need to find new suppliers. Similarly, China, which received 2.159 million bpd of Russian crude, accounting for 20% of its imports, will see significant disruptions, especially for its favored ESPO Blend crude.
Emma Li, an analyst at Vortexa, warned that exports of ESPO Blend crude could halt entirely under strict enforcement of sanctions. However, the outcome may depend on the policies of incoming U.S. President Donald Trump and China’s willingness to comply with sanctions.
Shift to Alternative Markets
As Russian oil supplies tighten, China and India are expected to increase purchases from Middle Eastern, African, and American producers. Rising demand has already pushed up prices for these grades, with Indian refiners anticipating higher costs for Middle Eastern oil.
“There is no choice but to turn to Middle Eastern oil, and possibly even U.S. oil,” said an official from an Indian refining company.
Analysts predict stronger bidding for February-loading Middle Eastern grades like Oman and Murban, tightening the Brent/Dubai spread.
In China, sanctions on Iranian crude tankers have already shifted demand toward heavier Middle Eastern grades and Canadian crude transported via the Trans Mountain pipeline, according to Harry Tchilinguirian of Onyx Capital Group.
The sanctions mark a pivotal moment in global energy markets, with ripple effects expected to reshape trade flows and price dynamics in the coming months.
