Two Countries Refuse to Purchase Russian Oil Due to Freight Costs

China and India have stopped buying Russian oil due to increased freight costs for tankers not subject to US sanctions.

Photo: commons.wikimedia.org by АльфваНбим, https://creativecommons.org/publicdomain/zero/1.0/

Pavel Chernysh oil tanker

A representative from India's Bharat Petroleum Corp Ltd stated that the company has not received new supply offers for March, as is usually the case, and expects the volume of cargoes offered for the first month of spring to decrease compared to January and December. Typically, India receives offers for Russian oil supplies in the middle of each month.

Traders noted that the premium for Russian ESPO crude oil has increased by $3-5 per barrel compared to ICE Brent, while freight rates for Aframax tankers on routes to China have risen by "several million dollars."

Meanwhile, the US has already warned India that tankers loaded with Russian oil must be unloaded by February 27. As a result, Indian refineries have begun seeking alternative supply sources from the Middle East, Africa, and the US.

US Sanctions and Their Impact

On January 10, the US imposed "most stringent sanctions" against Russia's energy sector. The restrictions targeted Gazprom Neft, Surgutneftegaz, their subsidiaries, and over 180 vessels that Washington deemed part of Moscow's "shadow fleet" for transporting fuel. As a result, refineries in China and India will be forced to increase imports from the Middle East, Africa, and the Americas, leading to higher fuel and freight prices. Several Chinese and Indian importers have refused to accept tankers affected by the sanctions.

Last week, Bharat Petroleum Corp. Ltd informed the agency that it had not received new supply offers for March and expects a reduction in cargo volumes compared to January and December. New Delhi typically receives offers for Russian oil supplies in the middle of each month, Reuters said.

India and China's Reliance on Russian Oil

In 2023, 36% of India's oil imports and nearly a fifth of China's imports came from Russia. Indian Deputy Minister of Petroleum and Natural Gas Pankaj Jain stated that the U. S. demanded tankers with Russian oil be unloaded by February 27 and payments made by March 12 in accordance with the new sanctions. The agency noted that ships in China are facing delays in unloading fuel.

Russia's Response to Sanctions

Russia considers Western sanctions illegal and demands their repeal. The Kremlin has called it impossible to halt traditional fuel supply routes. According to Russian Presidential Spokesman Dmitry Peskov, if one route is blocked, an alternative route will emerge, and Moscow will seek ways to minimize the impact of US restrictions.

Details

The petroleum or oil industry in Russia is one of the largest in the world. Russia has the largest reserves and was the largest exporter of natural gas. It has the sixth largest oil reserves, and is one of the largest producers of oil. It is the fourth largest energy user. In 2009, Russia produced 12% of the world's oil and had a similar share of global oil exports. Russia produced an average of 10.83 million barrels (1,722,000 m³) of oil per day in December 2015. In June 2006, Russian crude oil and condensate production reached the post-Soviet maximum of 9.7 million barrels (1,540,000 m³) per day. Exceeding production in 2000 by 3.2 Mbbl/d (510,000 m³/d). Russian exports consist of more than 5 Mbbl/d (790,000 m³/d) of oil and nearly 2 Mbbl/d (320,000 m³/d) of refined products, which go mainly to the European market. The domestic demand in 2005 was 2.6 Mbbl/d (410,000 m³/d) on average. It is also the main transit country for oil from Kazakhstan. Until 2022 Russia was by far the world's largest natural gas exporter. Most, but not all, authorities believe that Russia has the world's largest proven reserves of natural gas. Sources indicating Russia have the largest proven reserves including the US Energy Information Administration (47.8 tcm), and OPEC (48.7 tcm).