Oil prices rise as US sanctions target Russian exports to China and India

13 Jan 2025

Oil prices rise as US sanctions target Russian exports to China and India
Image Source: Free Malaysia Today, licensed under CC BY 4.0.
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Oil prices continued their upward trajectory for the third consecutive session on Monday, with Brent crude crossing $80 per barrel for the first time in over four months. The rally comes as expanded U.S. sanctions are expected to disrupt Russian crude exports to key markets in China and India.

By 07:41 GMT, Brent crude futures had gained $1.14, or 1.43%, to reach $80.90 per barrel after touching an intraday high of $81.49—levels not seen since late August. Similarly, U.S. West Texas Intermediate (WTI) crude rose by $1.20, or 1.57%, to $77.77 per barrel, peaking at $78.39, its highest price since early October.

Both Brent and WTI have climbed over 6% since January 8, spurred by Friday’s announcement from the U.S. Treasury imposing stricter sanctions on Russian oil. These measures target producers such as Gazprom Neft and Surgutneftegas, alongside 183 vessels involved in transporting Russian oil. The sanctions aim to curb Moscow’s ability to generate revenue for its ongoing conflict in Ukraine.

Impact on global oil markets

The new sanctions are expected to significantly disrupt Russian oil exports, compelling China and India—the world’s largest and third-largest oil importers—to seek alternative supplies from regions such as the Middle East, Africa, and the Americas. This shift could drive up oil prices and increase shipping costs, according to traders and analysts.

“Friday’s announcement strengthens our view that the risks to our $70–$85 Brent range forecast are skewed to the upside in the short term,” Goldman Sachs analysts noted. They estimated that the sanctioned vessels accounted for transporting 1.7 million barrels per day (mb/d) of Russian oil in 2024, or roughly 25% of the country’s total exports.

The anticipation of tighter supplies has already pushed monthly spreads for Brent and WTI to their widest backwardation levels since late 2024. Backwardation, where near-term prices are higher than those in future months, signals constrained supply.

Logistics and market shifts

RBC Capital Markets analysts highlighted the logistical challenges posed by the sanctions, noting the doubling of tanker restrictions for shipping Russian oil. Many of the affected vessels had previously transported oil to India and China, markets that have become critical for

Russian crude after Europe imposed its own sanctions and price caps in 2022.

Some of the tankers targeted by the latest measures have also been used to ship oil from Iran, another country under Western sanctions.

“These sanctions will have significant implications for India in particular,” said Harry Tchilinguirian, head of research at Onyx Capital Group.

Despite the tightening sanctions, JPMorgan analysts suggested that Russia retains limited options to maneuver. To maintain its exports, the country may need to acquire non-sanctioned tankers or offer oil below $60 per barrel to comply with Western price cap rules and secure insurance coverage.

As the ripple effects of the U.S. measures unfold, the global oil market braces for further price volatility in the weeks ahead.

FAQs about the news on rising oil prices due to US sanctions on Russian exports

1. Why are oil prices increasing?

Oil prices are rising due to expanded U.S. sanctions on Russian oil exports. These sanctions target Russian producers and tankers, reducing the availability of Russian crude in the global market, which tightens supply and pushes prices higher.

2. What are the new U.S. sanctions targeting?

The sanctions target key Russian oil producers like Gazprom Neft and Surgutneftegas, as well as 183 vessels used to transport Russian oil. The measures are designed to limit Russia’s oil revenue, which funds its war efforts in Ukraine.

3. How will these sanctions affect China and India?

China and India, being major importers of Russian oil, will need to source more crude from alternative suppliers in the Middle East, Africa, and the Americas. This shift is likely to increase costs for these countries due to higher shipping expenses and potentially higher crude prices.

4. What is backwardation, and how is it related to this news?

Backwardation is a market condition where near-term oil prices are higher than prices for future months, indicating tight supply. The anticipation of reduced Russian oil exports has pushed Brent and WTI into their widest backwardation since late 2024.

5. How much of Russia’s oil exports are affected by the sanctions?

The sanctioned vessels reportedly account for transporting approximately 1.7 million barrels per day, or 25% of Russia’s oil exports.

6. What alternatives does Russia have to counter these sanctions?

Russia may need to acquire non-sanctioned tankers or sell crude oil at or below $60 per barrel to comply with Western price cap rules and continue using Western insurance services.

7. How do these sanctions impact global oil markets?

The sanctions reduce Russian oil supplies to key markets, forcing buyers to seek alternative sources, which tightens global supply. This supply crunch drives up prices and creates logistical challenges for oil transportation.

8. What role do India and China play in the oil market?

India and China are among the largest importers of oil globally. Their reliance on Russian oil has grown since Western sanctions shifted trade flows from Europe to Asia. Disruptions in Russian oil exports significantly impact these economies and global trade dynamics.

9. Are other oil-producing countries benefiting from this situation?

Yes, alternative suppliers such as those in the Middle East, Africa, and the Americas may see increased demand from China and India, potentially boosting their revenues.

10. What do analysts predict about future oil prices?

Analysts from Goldman Sachs and other firms suggest that risks to oil prices are skewed to the upside in the short term. However, the market remains volatile, and much depends on how countries and companies adapt to the new sanctions.

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