Russian Sanctions Push Up Costs, Trade in Oil Between China and India Stalls

According to traders and shipping data, after the United States imposed new sanctions on the Russian oil supply chain on January 10, the soaring cost of oil tanker rentals has led to a halt in Russia oil trades to China and India in March.

Three informed traders told Reuters that the price per barrel of Russian ESPO blend crude oil, exported from the major port of Kozmino in eastern Russia in March, is now $3 to $5 higher than the ICE Brent crude prices. Prior to this, the freight cost for an Aframax oil tanker on this route had surged by millions of dollars.

Before the January sanctions, strong winter demand and high prices of Iranian similar products had caused the spot premium for ESPO blend crude oil to China to rise to nearly $2 per barrel, reaching the highest level since the outbreak of the Russia-Ukraine war in 2022.

Last week, the Chief Financial Officer of Bharat Petroleum Corp Ltd (BPCL) in India also told Reuters that the company has not received any new price quotes for March deliveries and expects the quantity of goods in March to be lower than in January and December last year.

Russian crude oil accounted for 36% of India’s import volume in 2024 and nearly one-fifth of China’s import volume in 2024.

According to data from the analysis company Kpler, the latest U.S. sanctions target oil tankers that transport approximately 42% of Russian maritime oil exports, primarily to China.

Consulting firm FGE stated that the Shandong Port Group in China had announced earlier this month that it would ban vessels subject to U.S. sanctions from docking at Qingdao, Rizhao, and Yantai ports, and refuse to provide unloading and shipping services for these vessels, which is estimated to result in a daily loss of up to one million barrels of crude oil supply for Shandong’s refineries in the short term.

FGE reported that due to higher alternative supply costs, independent refineries are cutting production, with an expected daily reduction of 400,000 barrels by February.

Xu Muyu, a senior analyst at Kpler, predicts that after dropping to a low of 717,000 barrels per day last week, China’s imports of crude oil from Russia’s Far East region will remain low in the coming weeks.

Regarding India, FGE indicated that the country is facing a supply disruption of 450,000 barrels per day. However, India has been adjusting its supply and the supply of Russian crude oil in December last year and January this year has been decreasing compared to the previous six months.

Reuters reported that Indian refiners anticipate a tightening of Russian supply and have sought alternative supplies from the Middle East, Africa, and the United States for March and April.