Russia's oil sales to China and India have stalled due to sanctions leading to increased shipping costs. The trading process for Russia's oil to be loaded in March has come to a halt in Asia, the market with the largest buyers. This is linked to a significant price gap between buyers and sellers in China, as well as a sharp increase in the cost of chartering tankers not affected by US sanctions, report traders and logistic agencies.
Washington introduced new sanctions against Russia's oil delivery network on January 10th of this year, leading to a sharp rise in tanker shipping tariffs. Some buyers and ports in China and India have started to refuse vessels affected by sanctions.
For Russian ESPO Blend oil exported from the Kozmino (Nakhodka) port in the Pacific Ocean, a premium of $3-5 per barrel is being offered for delivery to China according to the (DES) terms relative to ICE Brent quotes. The shipping tariffs for Aframax tankers on this route have increased by several million dollars.
Before the January sanctions, due to high demand in the winter season and the price increase of Iran's competing oil types, the selling price of ESPO Blend in the Chinese market had risen up to $2 per barrel. This was the highest indicator since the start of the Ukraine war in 2022, when the deep discounts had reached $6.
Challenges in the Indian market
According to the finance director of Bharat Petroleum Corp Ltd (BPCL.NS) last week to Reuters, the company has not received new offers for March. Usually, offers are received mid-month, but this time, the volume of cargo available for March is expected to decrease compared to January and December.
Typically, India receives offers for Russian oil in the middle of each month. In 2024, Russian oil constituted 36% of India's oil imports and one-fifth of China's imports.
According to Kpler analysis company, new sanctions target tankers servicing 42% of Russia's seaborne oil exports. Regardless, tankers under sanctions will continue to deliver oil to Chinese and Indian ports for a certain period.
The Indian oil minister Pankaj Jain reported last week that the US has warned India that Russian oil loaded on tankers must be discharged by February 27th. Moreover, payments for oil transported in sanctioned tankers must be completed by March 12th.
Delays at Ports
Despite being officially on temporary permission, tankers under sanctions are encountering delays in discharging oil in China.
– On January 15-17, three tankers discharged ESPO and Sokol grade oil cargoes.
– The Olia tanker discharged its ESPO cargo in Yantai (Shandong) port on January 21, after carrying the cargo for three weeks.
– The Huihai Pacific tanker, having loaded its cargo on January 5, is still waiting to discharge in Tianjin port, while the Viktor Titov tanker loaded its cargo on January 6 and is currently heading to Qingdao port.
Since January 10th, India has seen nine tankers under sanctions discharge oil, with several more tankers carrying Urals grade oil en route.
According to FGE consulting company, due to US sanctions and restrictions imposed by China's Shandong port group at the beginning of this month, the Shandong province plants may lose up to 1 million barrels of oil per day.
Economic Consequences
– Independent oil refineries are forced to process less oil as alternative suppliers are more expensive.
– According to FGE calculations, the processing volume could decrease by up to 400,000 barrels per day until February.
– Kpler analyst Sue Mujoo believes China's import of Russia's Eastern Siberian oil will continue to decline in the coming weeks. Last week, this import dropped to the lowest level in the last six months – 717,000 barrels/day.
– As for India, according to FGE data, the country might face a shortage of 450,000 barrels per day of Russian oil. However, Indian refineries are making use of the ongoing sanctions.
India has been feeling the decline in Russian oil since December 2023. According to Reuters, Indian refineries are trying to purchase oil from the Middle East, Africa, and the US for March and April, as the supply of Russian oil might further decrease.
Abdullah Sayyid
