Chinese and Indian refiners are urgently sourcing alternative crude oil supplies as new U.S. sanctions target Russia’s oil and gas revenues, disrupting global energy markets. The Biden administration implemented its most extensive sanctions to date on Friday, aiming to limit Russia’s ability to finance its war in Ukraine.
The sanctions target key Russian oil producers, including Gazprom Neft and Surgutneftegaz, alongside 183 vessels from Russia’s "shadow fleet," which has previously helped circumvent Western restrictions. Analysts suggest these measures could cut Russian oil exports by 1.5 million barrels daily, approximately 1.4% of global demand.
Brent crude prices surged above $81 per barrel, the highest since August, reflecting market fears of tighter supplies. The Kremlin criticized the sanctions, warning of global market instability and pledging to counteract the measures.
China and India, major buyers of Russian oil, are pivoting to alternative sources. Chinese refiners have halted dealings with sanctioned tankers, instead purchasing oil from Abu Dhabi, Angola, Brazil, and West Africa. Unipec, a leading Chinese trader, recently booked large crude carriers from the Middle East to meet demand.
India, the world’s third-largest oil importer, announced a two-month transition period to adjust to the sanctions. Russian oil cargoes booked before January 10 will still be accepted, while Russia is expected to offer deeper discounts to maintain exports below the $60-per-barrel price cap set by the Group of Seven in 2022.
Russia’s shadow fleet, estimated at 600 tankers, is adapting to the sanctions. Ship tracking data shows increased anchorage near China, Singapore, and Russia. However, the opacity surrounding these vessels raises concerns about potential environmental risks and insurance claims in case of accidents.
With Chinese and Indian refiners turning to non-Russian supplies, spot prices for regional crudes are rising. Analysts warn of prolonged volatility as nations navigate the sanctions’ impact on energy security and trade flows.
This development highlights the complexities of global energy markets amid geopolitical tensions, as nations recalibrate their strategies to ensure stable fuel supplies.