Recent challenges have emerged for Russian crude oil sales to both China and India, primarily due to soaring shipping costs spurred by new U.S. sanctions. According to reports from Reuters on January 28, the sanctions, which took effect on January 10, have significantly complicated trade routes for Russian oil, particularly affecting shipments scheduled for March delivery.
The U.S. sanctions target nearly 200 vessels within Russia's "shadow fleet"—a series of ships allegedly used to evade previous sanctions. These measures also aim at major oil companies and associated entities, creating substantial barriers for Moscow's efforts to export its crude oil. The sanctions have resulted in stalled trade as the growing shipping costs have widened the price gap between buyers and sellers.
Specifically, offers for Rusian ESPO Blend crude, sourced from the Pacific port of Kozmino, have surged to prices of $3–$5 per barrel over ICE Brent on a delivered ex-ship (DES) basis to China. This pricing shift follows a dramatic increase—by millions of dollars—in Aframax tanker freight rates.
Before the sanctions took hold, demand for Russian ESPO Blend crude had been strong. Spot premiums for this crude rose to around $2 per barrel, driven up by firming prices of competing Iranian grades, coupled with seasonal winter demand. This trend, unfortunately, has been reversed as the new sanctions take effect.
India's state-owned Bharat Petroleum Corp Ltd has also reported no new offers for March deliveries of Russian oil, indicative of the softening demand and expectations of fewer cargoes than seen in the previous months of January and December. Last year, Russian crude accounted for 36% of India's total crude imports, making these developments particularly worrying for Indian energy markets.
Across the ocean, China, which accounted for nearly 20% of its crude imports from Russia, faces similar issues. The mounting shipping fees and halted trade agreements are forcing buyers to rethink their sourcing strategies for crude oil, as the potential for high costs looms large.
Recent reports have indicated additional hurdles for Indian purchasers, as Indian banks have halted transactions concerning Russian oil imports following the latest U.S. sanctions. This effectively adds another layer of complication to the already strained trade relations between these countries.
U.S. President Donald Trump, responding to the geopolitical scenario on January 22, warned Russia to "make a deal" to end the continued hostilities related to the conflict with Ukraine. He cautioned Russia of impending sanctions and tariffs if they maintained their current course, stressing the increasing international pressure on the country.
The sophisticated networks of international shipping and oil trade are feeling the repercussions of these sanctions, creating considerable uncertainty for Russian crude suppliers. With transportation logistics severed and alternative routes more costly, the challenge is mounting for Russia to maintain its market share within the large Asian economies.
Analysts predict this could lead to long-term consequences for Russian oil exports—particularly as China and India's energy demands continue to evolve. The stakeholders involved will need to assess and potentially reshape their strategies, whether through diversification of supply sources or pursuing arrangements to mitigate tariff impositions.
Overall, the combination of heightened shipping costs, blocked payments, and strict sanctions paints a grim picture for Russian crude oil sellers as they navigate this multifaceted challenge. The situation remains fluid, with the potential for future sanctions and retaliatory measures lying on the horizon, keeping energy markets on high alert for the coming months.