New Delhi/Singapore: Chinese and Indian refiners will import more oil from the Middle East, Africa and the Americas, boosting prices and shipping costs, as new US sanctions on Russian producers and ships curb supplies to Moscow’s top customers, traders and analysts said.
On Friday, the US Treasury Department imposed sanctions on the two Russian oil companies, Gazprom Neft and Surgut Neftegaz, in addition to 183 ships that shipped Russian oil, targeting the revenues that Moscow used to finance its war with Ukraine.
Many tankers have been used to ship oil to India and China as Western sanctions and price caps imposed by the Group of Seven nations in 2022 shift Russian oil trade from Europe to Asia. Some tankers also shipped oil from Iran, which is also subject to sanctions.
Two Chinese trade sources said that Russian oil exports will be severely affected by the new sanctions, which will force independent Chinese refineries to reduce refining production in the future.
The sources requested anonymity because they are not authorized to speak to the media.
Matt Wright, senior shipping analyst at Kpler, said in a note that among the ships subject to the new sanctions, 143 oil tankers handled more than 530 million barrels of Russian crude last year, about 42% of the country’s total exports of crude oil transported. By sea.
He added that about 300 million barrels of it were shipped to China, while the bulk of the rest went to India.
“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 identified tankers had shipped nearly 900,000 barrels per day of Russian crude to China over the past 12 months.
“He will come down from the cliff,” he added.
In the first 11 months of last year, India’s imports of Russian crude rose by 4.5% year-on-year to 1.764 million barrels per day, or 36% of India’s total imports. The volume of Chinese imports, including pipeline supplies, rose by 2% to 99.09 million metric tons (2.159 million barrels per day), or 20% of its total imports, during the same period.
Most of China’s imports consist of Russian Espoo Blend crude, which is sold at above the maximum price, while India mostly buys Urals oil.
Emma Lee, a Vortexa analyst, said Russian Espoo crude exports would halt if the sanctions were strictly enforced, but it would depend on whether US President-elect Donald Trump lifted the ban as well as whether China recognized the sanctions.
The sources said that the new sanctions will push China and India to return to the oil market, which are committed to seeking more supplies from the Middle East, Africa and the Americas.
They added that spot prices for Middle Eastern, African and Brazilian crude oils have already risen in recent months due to increased demand from China and India, with Russian and Iranian oil supplies shrinking and their costs increasing.
An Indian oil refining official said: “The prices of Middle Eastern crude oils are already rising.
He added: “There is no choice but to turn to Middle Eastern oil. “Maybe we should turn to American oil, too.”
A second Indian refining source said that the sanctions imposed on Russian oil insurance companies will push Russia to price its crude at less than $60 per barrel so that Moscow can continue to use Western insurance and tankers.
“Indian refiners, the main buyers of Russian crude, are unlikely to wait to find out and will strive to find alternatives in Middle East crude and Atlantic Basin crude linked to Brent,” said Harry Tchilinguirian, head of research at Onyx Capital Group.
He added: “The strength of the Dubai index can only rise from here as we are likely to see strong bidding to load cargoes in February such as Oman or Murban, leading to a lower spread between Brent and Dubai.”
Last month, the Biden administration designated more ships handling Iranian crude ahead of tougher measures expected from the incoming Trump administration, prompting the Shandong Port Group to bar sanctioned tankers from docking at its ports in the Chinese eastern province.
As a result, China, a major buyer of Iranian crude, will also shift to heavier Middle Eastern oil and will likely increase its access to Canadian crude from the Trans-Mountain (TMX) pipeline, Tchilinguirian said.