Russian oil exports hit by new sanctions, buyers retreat
In China, there are no buyers for March deliveries of oil from Russia after new American sanctions on Russia's "shadow fleet" led to increased tanker transport costs, which were not covered by these sanctions, Reuters reports. A similar situation has occurred in India.
On January 10, the U.S. introduced a new package of sanctions, which included Gazprom Neft, Surgutneftegaz, financial and insurance institutions involved in oil and gas transactions, and over 180 ships belonging to the "shadow fleet," which illegally transport Russian oil.
As reported by Reuters on Tuesday, these sanctions have already had tangible effects. The main recipients of Russian oil, China and India, have suspended purchases from Russia because the delivery costs by non-sanctioned ships have become too high.
Reuters estimates that in 2024, imports of oil from Russia made up 36% of India's oil imports and about one-fifth of China's imports.
In mid-January, the International Energy Agency (IEA) in its monthly oil market report assessed that the latest package of American sanctions targeting Russian oil producers and the so-called shadow fleet may significantly disrupt Russian oil supply and distribution chains. The IEA concluded that although the sanctions are broad, their full impact on the oil market and Russian supplies is uncertain.
Will new sanctions not help for long?
Reuters reported on January 13 that China and India began seeking new sources from which they could order oil. The agency added that analysts believe the new American sanctions will likely reduce Russian oil exports in the short term, but Russia may adapt to them by using ships from its auxiliary fleet, which are still not sanctioned.
Reuters also noted that the true size of Russia's auxiliary fleet is unknown, but it is estimated to consist of nearly 600 tankers.
Will Brussels strike at Putin?
In mid-January, the European Commission began consultations with member states on a new EU 16th package of sanctions against Russia. Discussions include restrictions on the import of Russian aluminum, including wire, pipes, and foil; further restrictions on agricultural products imported from Russia, including fertilizers; sanctions on liquefied natural gas (LNG), the so-called shadow fleet; and lowering the price cap on Russian oil, as requested by EU northern countries: Sweden, Finland, Denmark, Lithuania, Latvia, and Estonia.
However, according to EU sources, some of the sanctions proposed by the EC have no chance of approval because certain EU countries will not agree to them. Raising tariffs on certain agricultural goods from Russia and Belarus, including fertilizers, is not expected to be a problem. However, EU diplomats assert that member states will not agree to impose sanctions on aluminum imports. In Brussels corridors, it is even said that the topic of Russian aluminum is a "trial balloon" launched by the EC before almost every new sanctions proposal to see if the attitudes of member states have changed.
Implementing energy sanctions on Russia, including on Russian LNG, as requested by Scandinavian and Baltic countries, as well as Poland and the Spanish government, might also be problematic, as most EU countries are unlikely to support this proposal.
However, there are prospects for sanctions concerning the shadow fleet. So far, successive sanction packages have mainly focused on adding more ships to the blacklist, and currently, only 72 of approximately 600 ships are listed. Member states now want to find a way to effectively limit the fleet's operations.
Among the proposed solutions is the mandatory control of insurance agreements for units operating in European waters. The shadow fleet consists of old, dilapidated ships, mostly uninsured, so in the case of, for example, an oil spill, no one takes responsibility, posing a risk to EU waters. In Brussels circles, there is also talk of extending port procedures for these units to make entering ports and transporting oil completely unprofitable for them.
Regarding lowering the price cap on Russian oil, the decision will belong to the G7 countries, which set the price at $60 per barrel in 2022. On Monday, six countries, in a letter to the EC, argued that it is time to add lowering oil prices to the sanctions list, but the EC made it clear that the final decision on this matter would depend on G7 partners.
