Sanctions tighten grip on Russian oil, pushing China and India away
In China, there are no interested parties for March deliveries of oil from Russia after new American sanctions on the Russian "shadow fleet" led to increased tanker transport costs not covered by these sanctions, Reuters reports. A similar situation has occurred in India.
On January 10, the US introduced a new package of sanctions, targeting, among others, Gazprom Neft and Surgutneftegaz, financial and insurance institutions engaged in handling oil and gas transactions and over 180 ships belonging to the "shadow fleet," units transporting Russian oil against bans.
As reported by Reuters, these sanctions have already had tangible effects. The main recipients of Russian oil, China and India, have suspended purchases from Russia because the delivery costs for crude oil through ships not on the sanction list have become too high.
Reuters estimates that in 2024, oil imports from Russia accounted for 36% of this raw material's imports in India and about one-fifth of imports in China.
In mid-January, the International Energy Agency (IEA) in its monthly oil market report assessed that the latest package of American sanctions targeting Russian oil producers and the so-called shadow fleet could significantly disrupt Russian oil supply and distribution chains. The IEA acknowledged that although the sanctions are extensive, their full impact on the oil market and Russian supplies is uncertain.
Will the new sanctions not help for long?
Reuters reported as early as January 13 that China and India began looking for new routes to order oil. The agency added that analysts claim new American sanctions are likely to reduce Russian oil exports in the short term, but Russia may adapt to them by using ships from its auxiliary fleet, which are not yet sanctioned.
Reuters also mentioned that the actual size of the Russian auxiliary fleet is unknown, but it is estimated to consist of nearly 600 tankers.
Will Brussels strike against Putin?
In mid-January, the European Commission began consultations with member states on a new, 16th EU sanctions package against Russia. Among the discussions are restrictions on the import of Russian aluminum, including wire, pipes, and foil; further restrictions on agricultural products imported from Russia, including fertilizers; sanctions on liquefied natural gas (LNG), the so-called shadow fleet, and lowering the price cap on Russian oil, as advocated by the Nordic EU countries: Sweden, Finland, Denmark, Lithuania, Latvia, and Estonia.
However, as EU sources admit, there's no chance for some of the sanctions proposed by the European Commission, as some EU countries will not agree to them. There is no problem with raising tariffs on certain agricultural goods from Russia and Belarus, including fertilizers. However, as EU diplomats claim, member states will not agree to impose sanctions on aluminum imports. In Brussels corridors, it's even said that the topic of Russian aluminum is such a "balloon" released by the European Commission almost before every new sanctions project to see if member states' attitudes have changed.
Introducing energy sanctions on Russia, including Russian LNG, which Scandinavian and Baltic countries and Poland, as well as the Spanish government, have appealed for, could also be problematic since the majority of EU countries are unlikely to support this proposal.
There are chances, however, for sanctions concerning the shadow fleet. So far, subsequent sanctions packages have mainly focused on adding more units to the blacklist, and currently, there are only 72 units out of about 600 ships on it. However, now member states want to find a way to effectively restrict the fleet's activities.
Among the proposed solutions, there was mandatory checking of insurance contracts for vessels moving in European waters. The shadow fleet consists of old, dilapidated ships, mostly uninsured, which means, for example, in case of an oil spill, no one bears responsibility, posing a risk to EU waters. In Brussels circles, there is also talk of prolonging port procedures for these units to make entering ports and transporting oil completely unviable for them.
As for lowering the price cap on Russian oil, the decision will belong to the G7 countries, which as early as 2022 set prices at $60 (CAD 88) per barrel. On Monday, six countries in a letter to the European Commission argued that it was time to add lowering oil prices to the sanctions list, but the European Commission made it clear that the final decision on this matter would depend on G7 partners.
