Chinese and Indian refiners are set to source more oil from the Middle East, Africa, and the Americas, which is expected to drive up prices and freight costs.
This shift comes as new U.S. sanctions on Russian producers and vessels restrict supplies to Moscow’s top customers.
On Friday, the U.S. Treasury imposed sanctions on Russian oil producers Gazprom Neft and Surgutneftegas, along with 183 vessels that have transported Russian oil, aiming to reduce the revenues Moscow uses to fund its war in Ukraine.
Many of the tankers affected by the new U.S. sanctions have been used to ship oil to India and China, as Western sanctions and the 2022 price cap imposed by the Group of Seven shifted Russian oil trade from Europe to Asia.
Some tankers have also transported oil from Iran, which is under sanctions as well.
The new sanctions are expected to significantly impact Russian oil exports, forcing Chinese independent refiners to reduce refining output, according to two anonymous Chinese trade sources who are not authorized to speak to the media.
Among the newly sanctioned ships, 143 are oil tankers that transported over 530 million barrels of Russian crude last year, accounting for about 42% of the country’s total seaborne crude exports, according to Kpler’s lead freight analyst, Matt Wright.
“These sanctions will significantly reduce the fleet of ships available to deliver crude from Russia in the short term, pushing freight rates higher,” Wright said.
A Singapore-based trader stated that the designated tankers transported nearly 900,000 barrels per day (bpd) of Russian crude to China over the past 12 months.
“It’s going to drop off a cliff,” he added.
