The United States has ramped up its efforts to curb Russian oil exports by imposing fresh sanctions on key Russian producers and a significant number of oil tankers.
These new restrictions are set to disrupt the flow of crude to Russia’s largest buyers—China and India—forcing refiners to seek alternative supplies from the Middle East, Africa, and the Americas.
This shift is expected to drive up oil prices and freight costs, further complicating the global energy landscape.
New Sanctions and Their Impact
On Friday, the U.S. Treasury announced sanctions on Russian oil giants Gazprom Neft and Surgutneftegas, alongside 183 vessels transporting Russian crude. The goal is to weaken Russia’s ability to fund its ongoing war in Ukraine by limiting its access to global oil markets.
The sanctioned ships accounted for over 530 million barrels of Russian crude exports in 2024, nearly 42% of the country’s total seaborne oil shipments, according to Kpler’s lead freight analyst, Matt Wright. Of these, approximately 300 million barrels went to China, while most of the remainder was sent to India.
The sanctions will particularly impact independent refiners in China, who may be forced to cut production due to supply disruptions. Indian refiners, heavily reliant on Russian Urals crude, will also feel the strain as they scramble to secure alternative sources.
Soaring Oil Prices and Higher Freight Costs
Global oil prices have already reacted to the anticipated shortage. Brent crude surged past $81 per barrel, reaching its highest level in months. The restrictions are also expected to shrink the available fleet of ships capable of transporting Russian crude, leading to higher shipping costs.
According to a Singapore-based oil trader, the sanctioned tankers had been transporting around 900,000 barrels per day of Russian crude to China over the past year. With the new sanctions, this supply is expected to plummet drastically.
Where Will China and India Turn?
To compensate for the shortfall, China and India will likely increase imports from the Middle East, Africa, and the Americas. Spot prices for these regions’ crude oil have already been rising in response to growing demand, exacerbated by limited Russian and Iranian supply.
An Indian refinery official confirmed that Middle Eastern crude will become the primary alternative, though U.S. oil could also become a viable option. Another industry source suggested that Russia may lower the price of its crude below the $60 per barrel cap to continue using Western insurance and shipping services.
Meanwhile, China is expected to maximize its intake of Canadian crude from the Trans-Mountain pipeline (TMX) while also shifting toward heavier Middle Eastern grades.
Future Uncertainty Under Trump’s Leadership
While the Biden administration has aggressively expanded sanctions, the enforcement of these new rules will depend on President-elect Donald Trump’s policies when he takes office. Analysts suggest that Trump could either maintain or lift some of the restrictions, depending on his administration’s geopolitical stance.
With the tightening grip on Russian oil exports, global energy markets are bracing for higher prices, increased competition for alternative crude sources, and potential supply chain disruptions.
