Russia hikes crude exports on non-G7 tankers; 15 sanctioned ships continue liftings

Russia increased seaborne crude exports in January with tankers operating outside of the G7 price cap, including 15 ships recently blacklisted in the largest US sanctions enforcement on the country's energy sector.

Data from S&P Global Commodities at Sea and Maritime Intelligence Risk Suite showed 80.1% of Russia's seaborne crude exports last month, or 2.7 million b/d, were lifted by tankers not flagged, owned or operated by companies based in the G7, the EU, Australia, Switzerland and Norway, and not insured by Western protection and indemnity clubs.

In December, the non-G7 fleet -- mainly composed of sanctioned ships, or vessels deemed to be transporting sanctioned oil due to their operational patterns but not yet blacklisted -- loaded 78.9% of Russian exports, or 2.5 million b/d.

Russia, one of the top OPEC+ producers, still managed to raise overall seaborne crude exports from 3.1-3.2 million b/d in December to more than 3.3 million b/d last month after the US Treasury sanctioned nearly 160 oil tankers in the final days of the Biden administration.

Treasury has allowed the newly sanctioned ships to continue their journeys and discharge their cargoes until Feb. 27 if the oil was lifted before Jan. 10, but an analysis of CAS and MIRS data finds 15 of them have loaded 12.8 million barrels of Russian crude after the cut-off point.

As of early February, one of them already discharged 720,000 barrels of Sokol grade and one unloaded 730,000 barrels of Sakhalin Blend in China.

Shandong Port Group, often used by independent Chinese refineries to import Russian, Iranian and Venezuelan oil previously, declared a ban on the entry of US-sanctioned ships at the beginning of this year. The ports that received the tankers were not owned by the company.

Further looking, industry players suggested Russia could struggle to sell oil by sanctioned tankers in the short term before finding more ways to disguise cargo origin, such as dark ship-to-ship transfers.

The amount of Russian oil on the water rose to 108 million barrels on Feb. 6 from the pre-sanctions level of 88 million barrels, CAS data suggested.

Trade dynamics

China and India, which have emerged as the largest Russian oil buyers since the Ukraine war, have taken a more cautious stance as the new US administration is promising more sanctions and trade tariffs.

"China is having no qualms about appeasing the US for now over shipping sanctions, while it tries to even out a trade tariff relationship with the US," said Elisabeth Braw, a senior fellow at the think tank Atlantic Council.

In a recent interview with S&P Global Commodity Insights, India's Petroleum Minister Hardeep Singh Puri said the country's oil dealings with Russia would take into account sanctions development.

"The West does not want a situation where India doesn't buy Russian oil because if India were to stop buying Russian oil, large Indian purchases from other centers would shoot the prices up," Puri said. "What they want us to do is to buy at reasonable prices."

Platts assessed Urals, Russia's flagship crude grade, on an FOB Primorsk basis at a $15/b discount to Dated Brent Feb. 6, $3.70/b wider than the Jan. 9 assessment, the day before the recent US sanctions were announced, and the lowest level since June 3.

On the Pacific coast, the discount of Russia's ESPO crude on a FOB Kozmino basis to Dubai dropped nearly $10/b to $11.50/b on Jan. 20 before recovering to $7/b on Feb. 6.

Both Urals and ESPO crude have traded above the price cap of $60/b since January but occasionally dipped to multi-month lows.

Observers suggested Western sanctions are often aimed at disrupting Russia's oil logistics and raising transaction costs rather than choking off the country's exports.

"Further sanctions would weaken Russia's trading activity," the Brookings Institution said in a research note. "Global oil prices have not seen a sustained rise since the [recent US] announcement -- indicating additional room to sanction more shadow fleet oil tankers without risk of roiling global energy markets."

In response, non-G7 tankers trading in Russia have seen frequent changes in names and ownership to avoid sanction enforcers' scrutiny. A common tactic is to more ships under obscure companies in jurisdictions friendly to Russia, which makes the actual ownership of ships hard to track and allows ships to have more capability to operate even when sanctioned, potentially via non-dollar-denominated payments.

Some 40 opaque tanker operators lifted Russian crude for the first time in January, of which more than 40% were registered in the Seychelles, according to CAS and MIRS data.

Tanker operators in the East African island nation, a popular jurisdiction for Russian interests to set up shell companies, were responsible for lifting 22.9 million barrels last month -- more than any other country.