The new sanctions, which affect 183 oil tankers and major producers like Gazprom Neft and Surgutneftegaz, are expected to remove up to 700,000 barrels per day (bpd) from international markets, according to analysts. As Asian buyers of Russian crude scramble for alternative supplies, oil prices have surged, with some analyses suggesting that more than 1 million bpd of Moscow's export volumes could be significantly constrained, at least in the short term.
Designed to cut off a crucial revenue stream for Moscow, the sanctions also add pressure to an already fragile supply chain. Freight costs have surged in response, creating logistical challenges for major importers such as China and India.
As traders assess the fallout, concerns about rising prices, tighter supplies, and potential market volatility are growing. West Texas Intermediate (WTI) reached a weekly high of $80.77 per barrel on Wednesday, the highest price since July, while the low was $76.55 at Monday's opening. Brent crude recorded a high of $82.63 and a low of $79.60, both on Wednesday. Both grades are up for the week, with the WTI-Brent spread widening to -$3.50 per barrel.
Prices may receive additional support from recent GDP data from China, which showed the country achieving its 2024 growth target of 5.0 percent, surpassing analysts' expectations of 4.9 percent. Despite forecasts of peak crude oil demand, China's economy remains dependent on hydrocarbons, which is bullish for crude prices.
“Supply concerns stemming from US sanctions on Russian oil producers and tankers, coupled with expectations of a demand recovery driven by potential U.S. interest rate cuts, are bolstering the crude market,” said Toshitaka Tazawa from Fujitomi Securities in comments to Reuters.
The sanctions do exempt vessels loaded before January 10 with a delivery date prior to March 12. While the initial sanctions imposed by the West following Russia's invasion of Ukraine had limited impact, if the vessel-specific measures prove effective, Russia could lose many of the“shadow” tankers that have facilitated the transport of Urals crude to markets in India and China.
According to a Bloomberg analysis, approximately 1.5 million bpd of Russia's crude exports from its Pacific and Arctic ports are at risk, as most flows from the Sakhalin projects require specialized ice-class tankers-all of which have been sanctioned. Additionally, storage tankers and specialized vessels servicing shipments, storage, and loadings at Murmansk are now under sanctions.
In the Arctic and Russia's Far East, the crude grades most severely affected by the sanctions are expected to be Sokol, Sakhalin, and ESPO, according to Bloomberg's analysis.
The sanctions are already disrupting the market, with India and China racing to secure alternative supplies while assessing the broader implications of U.S. sanctions on Russian oil deliveries over the next six months.
The sanctions have left several million barrels of crude oil en route to India in a precarious situation, as there is a wind-down period until February 27 for parties to complete transactions with now-sanctioned entities and vessels.
Indian officials and refiners have held emergency meetings to discuss the implications of the sanctions on their largest crude oil supplier, while China's independent refiners are also conducting urgent discussions to devise strategies to navigate the fallout.
According to Vortexa, the most likely scenario for Russian crude exports moving forward is that they will face significant logistical challenges due to a lack of available tonnage.
“To maintain export volumes at current levels, Russia will likely have to sell crude below the price cap. At that point, Western vessel operators could become involved in transporting Russian crude,” Vortexa noted.
However, adherence to the Russian price cap will largely depend on China's willingness to allow sanctioned vessels to dock at its ports, Vortexa added.