Sanctions and rising freight rates disrupt Russian crude exports to China and India

Trade for March-loading Russian oil in Asia, the top buyer of Russian crude, has hit a standstill due to a widening price gap between buyers and sellers in China.

The gap is largely attributed to rising chartering costs for tankers, which have been unaffected by US sanctions and have surged in recent weeks, Caliber.Az reports, citing analysis by Reuters.

The US imposed new sanctions on Russia's oil supply chain on January 10, sending tanker freight rates soaring. As a result, some buyers and ports in China and India have steered clear of ships subject to sanctions. Offers for March exports of Russian ESPO Blend crude from the Pacific port of Kozmino have risen to premiums of $3-$5 per barrel above ICE Brent on a delivered ex-ship (DES) basis to China. This increase follows a dramatic jump in Aframax tanker freight rates by several million dollars, according to three traders familiar with the grade.

Before the January sanctions, strong winter demand and rising prices for competing Iranian grades had already pushed ESPO Blend crude spot premiums to China to nearly $2 per barrel, the highest since the beginning of the Ukraine war in 2022, which had previously driven discounts as deep as $6.

In India, however, there has been a notable drop in offers for March delivery, with Bharat Petroleum Corp Ltd's finance chief stating that the company has not received the usual offers for the month. It is expected that the number of cargoes offered for March will fall short of January and December levels.

Russia's crude oil exports to India accounted for 36% of the country's total oil imports, while China imported nearly a fifth of its oil from Russia in 2024. The latest sanctions, which target tankers carrying approximately 42% of Russia's seaborne oil exports, primarily affect shipments to China, according to analytics firm Kpler. However, sanctioned tankers are still discharging oil in China and India during a waiver period.

The US clarified that tankers loaded with Russian oil must be discharged by February 27 under the sanctions. Payments for oil onboard the affected ships must be cleared by March 12, India's oil secretary Pankaj Jain said.

In China, tankers newly sanctioned by the US are facing delays in offloading their cargo, despite meeting waiver requirements. Three tankers discharged Russian ESPO and Sokol crude during January 15-17, while the tanker Olia unloaded at Yantai port in Shandong after carrying its ESPO cargo for almost three weeks. Another tanker, Huihai Pacific, is still waiting to discharge its ESPO cargo at Tianjin after loading it on January 5. Additionally, Viktor Titov is heading to Qingdao after loading Sokol crude on January 6.

In India, nine newly sanctioned tankers have discharged oil since January 10, including several carrying Urals crude.

By Tamilla Hasanova