Indian and Chinese refiners are in a quest to find new suppliers of crude as they adapt to fresh US sanctions on Russian producers and tankers that are designed to curb the revenues of the world's second-largest oil exporter. In its last week in office, the Biden administration imposed sanctions on Russian oil producers Gazprom Neft and Surgutneftegas, as well as 183 vessels that have shipped Russian oil, as it targeted the revenues which Moscow has been using to fund its war with Ukraine.
Most of the sanctioned tankers have been used to ship oil to India and China--Moscow's two of the biggest consumers-- as Western sanctions and a price cap imposed by the Group of Seven countries in 2022 shifted trade in Russian oil from Europe to Asia. Some sanctioned tankers have also shipped oil from Iran.
How Is India Adapting To Sanctions
Indian refiners have reportedly stopped dealing with US-sanctioned oil tankers and entities but the country does not expect disruption to Russian crude supplies during a two-month wind-down period. The US has allowed a winding down of some energy-related transactions by March 12.
Citing sources in the government, news agency Reuters reported that India will allow Russian oil cargoes booked before January 10 to be discharged at ports in line with sanctions parameters.
"In the next two months, we do not anticipate major problems because the ships that are in transit will come through. 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," an official said on condition of anonymity.
They said that Russia could offer more discounts to India to meet the $60 per barrel price cap imposed by the Group of Seven countries in 2022 to be able to use Western tankers and insurance. "If we get Russian crude from a non-sanctioned entity which is below the price cap, I am sure we will be happy to look at it," the official said, adding that Indian banks will seek certificates of origin for Russian crude to ensure transactions do not involve sanctioned entities.
India is the world's third-largest consumer of crude oil, after the United States and China. Officials in New Delhi believe Russia will find ways to reach them. India was also reportedly examining the impact of the new US sanctions on Russia's Vostok oil project, in which Indian companies have a stake.
How Sanctions Can Impact Oil Prices In India
The impact of sanctions is likely to be felt only after the wind-down period expires in two months. But then too, the supply of oil supply would not be an issue. The Organization of the Petroleum Exporting Countries (OPEC) has 3 million barrels a day of spare capacity while non-OPEC suppliers like the US, Canada, Brazil, and Guyana can easily add barrels.
The main issue is going to be the price, but the increase in rates also shouldn't last long. Indian refiners are heading for negotiating annual contracts for 2025/26 to finalise supply deals with Middle East suppliers. Depending on the market, they may seek extra barrels from them.
Oil Prices At 4-Month High
The oil prices climbed about 2 per cent to a four-month high on Monday, with expectations that wider US sanctions on Russian oil would force buyers in India and China to seek other suppliers. Brent futures rose $1.25, or 1.6 per cent, to settle at $81.01 a barrel, while US West Texas Intermediate (WTI) crude rose $2.25, or 2.9 per cent, to settle at $78.82, according to a report by Reuters
This was Brent's highest close since August 26 and WTI's highest close since August 12, and kept both benchmarks in technically overbought territory for a second day in a row.
Impact Of Sanctions On Russia
The sanctions announced by US Tragedy on Friday are the most aggressive yet on Russia's energy trade. If they stay in place under the Trump administration, the measures have more chance of disrupting Russia's exports of petroleum than anything done by any Western power so far.
In theory, the measures can reduce what the International Energy Agency predicts will be a supply surplus of almost 1 million barrels a day this year.
The Kremlin on Monday said that the move risked destabilising global markets and Moscow would do everything possible to minimise their impact.
The sanctions also require US petroleum service companies to stop operations in Russia by February 27. Per a Bloomberg report, at least two US-based global providers have continued to work with Russia even after the Kremlin invaded Ukraine.
Yet the wider restrictions are unlikely to have any immediate effect on Russia's ability to pump crude, as domestic providers, including companies formerly owned by foreign investors, do the bulk of oil services in the country. Former subsidiaries of global oil service providers have retained the equipment, personnel and know-how sufficient to sustain Russia's drilling rates. Only around 15 per cent of the Russian oil-drilling market reportedly depends on foreign technologies.
Any impact on Russian oil production is likely to be felt only over the longer term and most keenly on greenfield projects that require most up-to-date technologies to pump oil profitably. As a result, Russia's foray into the Arctic reserves as well as the development of offshore fields may slow down.
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