The trade of Russian crude oil for March delivery to top buyers China and India has come to a standstill due to surging shipping costs, driven by fresh US sanctions. A widening price gap between buyers and sellers in China has further complicated transactions, according to industry sources and shipping data, gathered by Reuters.
The sanctions, introduced on 10 January target Russia’s oil supply chain, leading to soaring tanker freight rates. As a result, several buyers and ports in China and India have opted to avoid sanctioned vessels.
US, UK block Russia’s oil giants in largest-ever energy sanctions package, target shadow fleet
Offers for March-loading ESPO Blend crude—exported from Russia’s Pacific port of Kozmino—have risen to premiums of $3-$5 per barrel to ICE Brent on a delivered ex-ship (DES) basis in China. This spike follows a substantial increase in freight rates for Aframax tankers, which surged by several million dollars, traders familiar with the situation reported.
Prior to the new sanctions, a combination of robust winter demand and rising prices for alternative crude from Iran had already pushed ESPO spot premiums to nearly $2 per barrel. This marked a significant rise from the deep discounts of up to $6 seen in the aftermath of Russia’s full-scale invasion of Ukraine in 2022.
India’s crude supply disruptions
India’s Bharat Petroleum Corp Ltd (BPCL) has not received its usual Russian oil offers for March, a company finance official told Reuters. The number of Russian crude cargoes offered for March is expected to decline compared to January and December.
Russia currently supplies 36% of India’s crude oil imports and nearly a fifth of China’s. However, the latest sanctions are impacting around 42% of Russia’s seaborne oil exports—primarily destined for China—according to data from analytics firm Kpler.
iStories: New US sanctions affected vessels that transported a fifth of Russia’s oil exports in 2024
Despite these constraints, some sanctioned tankers have continued to discharge their cargo in China and India during a waiver period. The US government has clarified to Indian authorities that Russian oil onboard sanctioned vessels must be offloaded by 27 February, with payments settled by 12 March, according to India’s oil secretary Pankaj Jain.
Port delays and refinery adjustments
In China, sanctioned tankers are experiencing significant offloading delays, despite meeting waiver requirements. Several tankers carrying ESPO and Sokol crude discharged their cargoes between 15-17 January, while the Olia tanker offloaded at Shandong’s Yantai port after nearly three weeks at sea. Other vessels, such as the Huihai Pacific and Viktor Titov, remain at sea, awaiting clearance at Tianjin and Qingdao, respectively, according to LSEG shipping data.
Meanwhile, in India, nine newly sanctioned tankers have offloaded crude since 10 January, with more carrying Urals crude en route.
The impact of sanctions is further exacerbated by a recent ban imposed by China’s Shandong Port Group, which is expected to cut crude supply to independent refiners in Shandong province by up to 1 million barrels per day in the near term, consultancy firm FGE reported. Independent refiners are now reducing production runs due to the higher cost of alternative crude, with cuts expected to reach 400,000 barrels per day by February.
Kpler senior analyst Xu Muyu predicts that China’s imports of Russian Far East crude will remain low in the coming weeks, after falling to a six-month low of 717,000 barrels per day last week.
In India, disruptions to 450,000 barrels per day of Russian crude supply are expected. However, refiners are leveraging the wind-down period to secure alternative shipments. Indian refiners have already begun sourcing crude from the Middle East, Africa, and the US for deliveries in March and April, in anticipation of tightening Russian supplies.
Read more:
- US, UK Block Russia’s Oil Giants in Largest-Ever Energy Sanctions Package, Target ‘Shadow Fleet’
- Tougher US Sanctions to Curb Russian Oil Supply to China and India
- New US Sanctions Affected Vessels That Transported a Fifth of Russia’s Oil Exports in 2024
