Oil & Gas

The tightening sanctions on Russia's oil exports are leading to increased freight costs for transporting Russian crude. Shipping a barrel of Russian crude from a Baltic Sea port to China has cost approximately $14.50 since December, with more than half of this cost attributed to Western sanctions. Last month, the U.S. imposed new sanctions against Russia, coinciding with the second anniversary of the Russian invasion of Ukraine and in response to the death of opposition politician Alexey Navalny.

These sanctions are estimated to directly cost around 6-8% of the price of a barrel of crude leaving western Russian ports for Asia. Bloomberg's shipment tracking data suggests that hiring tankers for transporting Russian oil has cost about $773 million since the end of December 2023. Richard Bronze, head of geopolitics at Energy Aspects, commented that the impact on actual supply will depend on how quickly workarounds for freight issues are found and whether Russian sellers are willing to offer deeper discounts.

Russia is now seeking buyers for crude that was left stranded after the U.S. sanctioned Russia's state tanker operator Sovcomflot. China has stepped in to take most of the cargoes that were previously destined for India. However, Indian refiners are reportedly refusing Russian crude transported on Sovcomflot vessels to avoid violating U.S. sanctions. They are carefully checking the ownership chain of every tanker carrying Russian crude to ensure the vessels are not affiliated with sanctioned entities.

The U.S. Treasury and State Departments targeted Sovcomflot and more than a dozen tankers linked to the firm among the 500 entities hit by the new sanctions. Stranded cargoes of Russia's Sokol crude, previously bound for India but idled off South Korea and Singapore, began moving to China earlier this month to clear a backlog of over 10 million barrels. Russia may resort to using its "shadow fleet" of tankers to continue selling crude to customers willing to bypass sanctions, but with India becoming more cautious, Moscow will need to find new buyers or risk reduced oil revenues.