Asia Braces For Disruption From New US Sanctions On Russian Oil

Executives in Asia’s oil refining, tanker, and port sectors are scrambling to assess the full scope of the latest US sanctions on Russia’s oil industry, which threaten to disrupt the flow of discounted crude to major importers like China and India. The sanctions, announced on Friday, target key players in the Russian oil sector, including producers, insurers, and vessels, potentially upending the lucrative trade that has seen China and India as major beneficiaries since the outbreak of the Ukraine conflict in early 2022.

Independent refiners in China’s Shandong province, particularly reliant on Russian oil, convened urgent meetings to determine the fate of crude shipments that were already en route when the sanctions were enforced. The sanctions also caught Indian officials by surprise during a scheduled meeting, as key figures in the country’s oil ministry and state-owned refining companies gathered to discuss the sector’s future.

For India, which imports around one-third of its crude from Russia, the new sanctions threaten to create significant disruptions. Refinery executives, in consultation with legal teams, are preparing for the possibility of delays lasting three to six months, potentially impacting up to 800,000 barrels per day of imports. Meanwhile, Indian government officials, mindful of inflationary concerns, are preparing to negotiate with Washington to secure continued access to discounted Russian oil.

A central question for both China and India is the exact timeline of the sanctions’ implementation, including whether they will apply to vessels already in transit and if there is a “wind-down” period for shipments. To navigate these uncertainties, executives in both countries are seeking legal counsel.

According to data from analytics firm Kpler, the newly sanctioned tankers were responsible for transporting over 530 million barrels of Russian crude last year, making up roughly 40% of Russia’s seaborne oil exports. China accounted for the largest share of these shipments, with around 300 million barrels, representing 61% of the country’s seaborne imports of Russian oil.

The new sanctions hit Chinese independent refiners, or “teapots,” particularly hard, as they were already grappling with tight margins before the sanctions took effect. Three tankers carrying Russian crude are currently stranded off China’s eastern coast after being sanctioned by the US, serving as a crucial test case for the new measures. In response to the sanctions, Chinese diesel prices spiked over the weekend.

Despite the sanctions, enforcement remains a significant hurdle, and industry insiders suggest that shipping operators and teapots are already exploring ways to circumvent the restrictions. Some are considering redirecting Russian crude to smaller, private terminals rather than major ports, and using trucks instead of pipelines to move the oil within China. Ports in Shandong province, a key region for the country’s refining sector, are on high alert for sanctioned vessels, following a warning from a terminal operator.

For years, China’s independent refiners have capitalized on substantial discounts for Russian and Iranian oil, facilitated by a network of “dark fleet” tankers, local financiers, and ports willing to support the largely yuan-denominated trade. As new sanctions take hold, the resilience of this network will be put to the test in the coming months.