Oil Prices up as China, India Seek Alternative Supply After Fresh US Sanctions

Last Friday, the US Treasury Department imposed sanctions on Gazprom Neft and Surgutneftegas, as well as 183 vessels that traded oil as part of Russia’s so-called “shadow fleet” of tankers. The move is expected to cost Russia billions of Dollars per month.

This pushed the price of Brent higher by $1.25 or 1.6 per cent yesterday to $81.01 per barrel and raised the US West Texas Intermediate (WTI) crude by $2.25 or 2.9 per cent to $78.82 a barrel.

As a result, Chinese and Indian refiners are seeking alternative fuel supplies as they adapt to the severe sanctions on Russian producers and tankers that are designed to curb the revenues of the world’s second-largest oil exporter.

The large sanction gives Ukraine and the US President-elect, Mr Donald Trump, leverage to reach a deal for peace in the almost three years war.

Market analysts note that these sanctions have the potential to take as much as 700,000 barrels per day of supply off the market, which would erase the surplus that we are expecting for this year.

On its part, Goldman Sachs estimated that vessels targeted by the new sanctions transported 1.7 million barrels per day of oil in 2024, or 25 per cent of Russia’s exports. The bank is increasingly expecting its projection for a Brent range of $70-$85 to trade.

The Vladimir Putin-led government said the sanctions risked destabilising global markets, and Russia would seek to counter them.

Many of the tankers named have been used to ship oil to India and China after previous Western sanctions. A price cap imposed by the Group of Seven countries in 2022 shifted trade in Russian oil from Europe to Asia. Some of the ships have also moved oil from Iran, which is also under sanctions.

Also, six European Union countries called on the European Commission to lower the price cap put on Russian oil by G7 countries, arguing it would reduce Russia’s revenue to continue the war while not causing a market shock.

However, weaker demand from major oil buyers, China, could have an impact on the tighter supply as data showed that China’s crude oil imports fell in 2024 for the first time in two decades outside of the COVID-19 pandemic.