Sweeping sanctions spell trouble for Russian oil flows as India refiners rethink import strategy

The latest round of stringent sanctions against Russia will dent near-term oil flows to India as refiners are likely to stay clear of signing new import deals with the top non-OPEC supplier and wait for further guidance from the government while looking for alternative supplies to fill the gap, trade sources and analysts said.

The sanctions were announced at a time when Indian refiners had started to negotiate for March cargoes, traders said, adding that most refiners could now look toward the Middle East and West Africa for incremental volumes as they keep a close watch on US President-elect Donald Trump's policies once he is sworn in Jan. 20.

"This is the most significant OFAC sanctions package on the shadow fleet ecosystem since the start of the Russia-Ukraine conflict. With so many ships sanctioned, along with traders, charterers and marine insurers, this set of sanctions will in all probability dent near-term Russian oil flows into Asia, particularly India and China," said Rahul Kapoor, head of Shipping Analytics and Research at S&P Global Commodity Insights.

"The effectiveness of these measures hinges on how long these sanctioned ships take to change ownership, get quickly reflagged, or get another class certificate to keep trading, as well as on the continued acceptance by the Indian and Chinese ports and refineries. Access to tonnage has single-handedly facilitated Russian oil flows. And now the significant tightening of sanctions only increases the cost of accepting Russian oil for both India and China," Kapoor added.

Tough road ahead

The US and the UK announced a fresh package of sanctions on Russia's energy sector Jan. 10, including curbs on two major Russian oil producers, doubling down on a recent push to hit Moscow's oil revenues being sustained by a shadow tanker fleet.

The announcement not only helped boost crude oil futures but also caused a spike in spot sour differentials for Mars crude in the US.

The sanctions tightened curbs against Gazprom Neft and Surgutneftegas and add more than 180 ships, dozens of oil traders, oilfield service providers, tanker owners and managers, insurance companies, and energy officials to a blacklist, the US Treasury said in a statement.

"The sanctions this time has targeted ships, ship managers and insurance clubs. India refiners will stay on the sidelines for now as far as Russian crude is concerned. They have started talking to Saudi Arabia and West Africa for alternatives. They are now looking for March cargoes, and all these developments on sanctions are bound to raise prices," said a source at an Indian private refiner.

"The market is now in a tricky situation and will wait for the next policy move when Trump is sworn in," the source added.

The sanctions on Russian crude and refined products exports are seen as bullish for crude and refined products globally, but history has shown that Russian barrels generally find markets despite sanctions. That reality will likely cap the measure's bullish impact, Commodity Insights' analysts said.

Around 95% of newly sanctioned ships loaded crude oil and refined products that originated from Russia, while some of the remaining sanctioned ships loaded oil originating from Iraq and Iran. The total transported volumes are 1.8 million b/d of crude oil and refined products in 2024. Of that,1.5 million b/d of Russia-origin crude shipped on the newly sanctioned ships to China and India, with about 900,000 b/d going to China and about 450,000 b/d to India, according to CAS data.

As far as oil trade volumes are concerned, traders and analysts were unanimous that the sanctions would impact China more than they would affect India.

"The new round of sanctions are expected to sharply impact crude flows into India in the short term. In the longer term, this adds great uncertainty to the markets as refiners would want to ensure supply security and leave minimal volumes to spot markets. This is behind the rising prices even when the market is trading the seasonally low March loading cargoes," said Tushar Bansal, senior director at consulting agency Alvarez and Marsal.

Availability of tankers

India's refining sector relied on Russia for approximately 35% of its total crude oil imports and 59% of its fuel oil imports in 2024, according to Commodity Insights.

The two sanctioned Russian oil producers -- Gazprom Neft and Surgutneftegas -- discharged nearly 20% of total Russian crude that flowed to India in 2024, with most volumes being discharged at Vishakhapatnam, Cochin and Mangalore ports.

"Now that the US has identified over 180 vessels and shadow fleets as blocked property designated under sanctions, the availability of tankers capable of transporting Russian oil to India will be reduced too," said Abhishek Ranjan, South Asia oil research lead at Commodity Insights.

"While the impact on crude volumes remains to be seen in the short-term, the implications for fuel oil are likely to be more pronounced, given the volumes that were supplied by the sanctioned entities in 2024. Moreover, the future of these sanctions under Trump, in case of a deal with Russia, could change the situation again."

Initial estimates indicate a significant drop in Russian crude oil loading in the first week of 2025, although fuel oil loading doubled compared to the previous week, according to CAS data.

"The immediate effects of these changes will need to be closely monitored in the coming weeks. Nevertheless, there may be a silver lining for Indian refiners amid these sanctions. The new restrictions could enhance their negotiating power, allowing them to secure both crude and fuel oil at prices below the established price cap, as Russian producers may be more inclined to sell their oil in light of reduced market access," Ranjan added.