U.S. Sanctions Could Hit 1.5 Million Bpd of Russian Oil Exports
One week into the latest – and most aggressive yet – U.S. sanctions on Russian oil exports, the Asian buyers of Russian crude are scrambling for alternative supply, the price of oil has rallied, and analyses suggest that more than 1 million barrels per day (bpd) of Moscow’s export volumes could be severely constrained, at least in the short term.
The outgoing U.S. Administration on January 10 imposed the most severe sanctions on Russia’s oil yet, designating two major Russian oil companies, Gazprom Neft and Surgutneftegas, as well as 183 vessels, dozens of oil traders, oilfield service providers, insurance companies, and energy officials.
Many of the vessels, specialized tankers, and shuttle tankers transporting Russia’s oil from the Arctic and Far East Pacific fields and production clusters to Asia have now been sanctioned. This puts around 1.5 million bpd of Russia’s crude flows from its Pacific and Arctic ports at risk, according to a Bloomberg analysis of the tankers now designated by the U.S.
Most of the flows from the Sakhalin projects require special ice-class tankers—all of these have been sanctioned. The storage tankers and specialized vessels servicing shipments, storage, and loadings at Murmansk are also under sanctions now. The Gazprom Neft fields on the Yamal peninsula will also find it much harder to export crude—the company itself has been sanctioned, as have all its seven ice-class tankers handling shipments at and through the Arctic Gates terminal.
In the Arctic and Russia’s Far East, the crude grades most severely hit by the sanctions are expected to be Sokol, Sakhalin, and ESPO, according to Bloomberg’s analysis.
The least affected shipments are likely to be those of the Urals crude grade from the Baltic and Black Sea, which are mostly going to India.
Only a quarter of Russia’s shipments of Urals since October were carried on now-sanctioned tankers. That’s the smallest share of designated tankers of any Russian crude grade, Bloomberg’s analysis showed.
The sanctions are already roiling the market. India and China are racing to procure alternative supply while studying the wider implications of the U.S. sanctions on Russian oil deliveries six months from now.
The sanctions caught a few million barrels of crude oil en route to India in a precarious situation. There is a wind-down period until February 27 for parties to complete dealings with now-sanctioned entities and vessels. Indian state-held refiners are targeting to settle the payments for Russian oil in half the time they have taken so far, as part of efforts to complete the deals before the seven-week wind-down period in the latest U.S. sanctions ends.
India’s refiners have stopped doing business with the Russian tankers and companies sanctioned by the U.S., a source at the Indian government told Reuters on Monday.
India doesn’t expect major disruptions during the wind-down period until March.
But “Going forward, it’s early days yet to anticipate the impact, how discounts shape up, if somebody is willing to sell below the $60 price cap,” a source with the Indian government told Reuters earlier this week.
Indian officials and refiners held emergency meetings to discuss the implications of the sanctions on the exports of its single largest crude oil supplier. China’s independent refiners have also held emergency meetings to discuss the fallout and a workaround for the sanctions, sources tell Bloomberg.
Fleet capacity to service Russian exports is expected to tighten significantly, according to Mary Melton, a freight analyst at Vortexa.
So far, U.S. sanctions on individual vessels have been very effective in limiting further employment in Russian trade, Melton said this week.
According to Vortexa, the most likely scenario for Russian crude exports going forward is that they will most likely face serious logistical difficulty due to the lack of available tonnage.
“In order to keep export volumes at the same level, Russia will be forced to sell crude below the price cap. At that point, Western vessel operators would be able to get involved to lift Russian crude,” Vortexa’s Melton noted.
However, greater adherence to the Russian price cap will depend on China’s stance on allowing sanctioned vessels to call in its ports, Vortexa reckons.