Asia expected to sustain Russian oil flows at slower pace after US sanctions

Asian importers of Russian crude are expected to maintain their purchases, albeit at a reduced pace, following the latest round of Washington's sanctions on Russian companies, according to speakers at the Financial Times Commodities Asia Summit on Dec. 3.

India and China, the leading importers of Russian crude, have been scouting for alternatives to obtain Russian supplies from non-sanctioned entities, while simultaneously engaging with traditional suppliers in the Middle East, Africa and the Americas for additional volumes -- a trend expected to persist into 2026, the speakers said.

Saad Rahim, chief economist at Trafigura, said the latest round of sanctions had a relatively smaller impact on China compared with India.

"With India, it has been sort of up and down. With the latest round of sanctions, particularly on Rosneft and Lukoil, you have seen at least the Indian oil majors pull back a little bit from Russian oil," Rahim told the conference.

"But, ultimately, while volumes are coming down, they are not going to zero. Because you are still seeing some of the maybe smaller buyers who are buying from the non-sanctioned Russian entities."

On Oct. 22, the US imposed sanctions on Rosneft and Lukoil, with the Office of Foreign Assets Control setting Nov. 21 as the deadline for companies to wind down transactions involving the newly sanctioned entities. The following day, the EU enacted comprehensive transaction bans on Rosneft and Gazprom Neft, along with sanctions targeting Lukoil's subsidiary Litasco.

India's biggest private refiner, Reliance Industries Ltd., said Nov. 20 that it had immediately ceased importing Russian crude oil for its export-oriented refinery at the Jamnagar complex in Gujarat. The company said, effective Dec. 1, all oil products from that unit would be produced using non-Russian crude oil. The country's largest state-run refiner, Indian Oil Corp., has said it would continue to buy Russian crude but only from non-sanctioned entities, noting that this would enable the refiner to fulfill its obligations under US and EU sanctions.

Stance on Russian oil

The sanctions have been designed to avoid a complete halt to Russian oil exports, according to Rahim.

"This is now the 19th sanctions package out of the EU. Well, if you wanted to stop Russian oil flows, you could have done that in package one. That has not happened. So the oil continues to flow," Rahim said.

Baldev Bhinder, managing director of Blackstone & Gold, a specialist international trade and commodities law firm based in Singapore, told the conference that while China and India could face some sourcing challenges due to the sanctions, refiners have been rapidly developing alternative sourcing strategies.

"I think India and China are prepared for it. There will be reduced Russian flows naturally because of sanctions on Lukoil and Rosneft, but there are others who would be supplying price-capped Russian oil," Bhinder said. "And there will be an increase in intake from markets, such as the Middle East, South America and other sources by India and China."

In addition to sanctions, US tariffs have also altered the flow of US crude oil into Asia, June Goh, senior oil analyst at Sparta Commodities, said.

"Before the US tariffs were enacted, China was importing about 200,000 b/d of US crude, mainly WTI. Now, we are not seeing any flow of WTI to China," Goh said. "As a result of that, WTI is now going to new markets in Asia. It is going to Vietnam, and Pakistan took its first barrels of oil a few months ago."

"On top of that, we have seen a trade deal -- Indonesia is building 17 modular refineries and will take in US crude as a design crude in the coming future. So, if not for the tariffs, these changes in crude flows would not have happened."

China, India demand outlook

Rahim expects India's underlying oil demand growth to outpace that of China. While demand for transport fuels is experiencing downward pressure in China, the market has been receiving some support from jet fuel and petrochemicals, he said.

"In China, it really is down to this idea that gasoline demand is starting to come down now. Diesel demand is being impacted not just by LNG trucks but also by electric trucks being adopted at a much faster pace. So, the pockets of strength that are still there really are being driven by petrochemicals and a little bit by jet [fuel] as well," Rahim said.

China has been accumulating crude stocks at a higher-than-usual rate of about 1 million b/d in 2025, according to Goh.

"However, if you look at China's policies, [they have] not changed at all. China has always held the view that it needs to stockpile, as it is one of its pillars for energy security. They are very price sensitive when it comes to filling up their reserves. Right now, the utilization rate is about 60% of the [Strategic Petroleum Reserve]. There is still a lot of room to grow," Goh said.

The global oil market could face a surplus in the early part of 2026, according to Rahim.

"You just have a lot of supply that is coming in ... I think really what had kept us anchored here is the sort of binary outcome around Russia, where one day, we are going to see much stricter sanctions, and much bigger disruption of flows, and the next day, we are talking about we might get a peace deal before the end of the year, and that allows the barrels to come back in," Rahim said.

"So, I think that is a big unknown that is there. Ultimately, it is very hard for us not to get some builds in the first part of next year," he said.