Rising Freight Costs Prompt China and India to Pause Russian Oil Purchases

Recently, China and India have decided to halt their purchases of Russian oil, citing significant increases in freight costs.

These rising expenses are primarily due to tankers that aren’t subject to U.S. sanctions.

Supply Disruptions for India

A representative from Bharat Petroleum Corp Ltd in India shared that the company hasn’t received any new offers for Russian oil supplies for March, a usual practice at this time of year.

They also anticipate a decrease in the amount of oil available in the spring months compared to the volumes seen in December and January.

Generally, Indian buyers get supply offers from Russia in the middle of each month.

Traders are observing that the cost of Russian ESPO crude oil has climbed by $3 to $5 per barrel in comparison to ICE Brent prices.

Additionally, freight costs for Aframax tankers traveling to China have skyrocketed by millions of dollars.

Impact of U.S. Sanctions

In mid-January, the U.S. introduced new, tough sanctions targeting Russia’s energy sector.

These restrictions impacted major Russian companies like Gazprom Neft and Surgutneftegaz, and also affected over 180 vessels connected to Russia’s “shadow fleet” used to transport oil. The U.S. government has also warned India that tankers carrying Russian oil must be unloaded by February 27, 2025.

In response, Indian refineries are starting to look for alternatives from other oil-producing regions, such as the Middle East, Africa, and the U.S.

Shifting Trade Routes for Oil Imports

With these sanctions in place, China and India, which were both heavily reliant on Russian oil in 2023, are now adjusting.

India imported 36% of its oil from Russia, while China sourced nearly 20% of its oil from the country.

Following the sanctions, India is exploring different supply sources and encountering delays in unloading tankers in China. As part of the sanctions, the U.S. has also required payments for oil deliveries to be made by March 12, 2025.

Russia’s Reaction to the Sanctions

The Russian government has pushed back against these sanctions, declaring them illegal.

Russia maintains that the disruption of traditional oil supply routes will not stop its energy exports.

Kremlin spokesperson Dmitry Peskov has stated that while one route may close, others will open up, and Russia will continue to look for ways to minimize the effects of these U.S. sanctions.

Russia’s Oil Industry Overview

Russia’s oil industry is a key player in the global energy market. As the sixth-largest holder of oil reserves, Russia is one of the world’s biggest oil producers.

In 2009, Russia produced about 12% of the world’s oil and was a major exporter, especially to Europe.

In December 2015, Russia produced an average of 10.83 million barrels per day.

Russian crude oil exports account for over 5 million barrels per day, and the country also exports refined oil products.

Russia has long been a dominant force in global energy, especially in natural gas exports, holding some of the largest proven reserves in the world.

Despite the ongoing challenges, the country remains a critical energy provider on the international stage.

This article was published on TDPel Media. Thanks for reading!

Share on Facebook «||» Share on Twitter «||» Share on Reddit «||» Share on LinkedIn