China and India Shift Oil Import Strategy Amid New U.S. Sanctions on Russian Crude
China and India adjust oil import strategies as U.S. sanctions on Russian crude disrupt supplies. Discover the market shifts and rising competition for Middle Eastern oil.
Chinese and Indian refiners are pivoting their oil import strategies toward the Middle East, Africa, and the Americas. This shift comes as fresh U.S. sanctions on Russian oil producers and tankers disrupt supplies to two of Moscow’s largest markets, pushing up global oil prices and freight costs, according to industry insiders.
The U.S. Treasury announced sanctions on Friday targeting major Russian oil producers Gazprom Neft and Surgutneftegas, alongside 183 vessels used to transport Russian crude. These measures aim to cut off revenue streams that Russia has utilized to sustain its war efforts in Ukraine.
A Blow to Russian Oil Exports
The sanctions are expected to significantly impact Russian crude exports, particularly to Asia. Chinese independent refiners, heavily reliant on Russian oil, are bracing for production cuts, according to trade sources. These refiners have been central to redirecting Russian oil trade flows from Europe to Asia after Western sanctions and the G7’s 2022 price cap.
“This is a major disruption,” said a Singapore-based trader, noting that sanctioned tankers transported approximately 900,000 barrels per day (bpd) of Russian crude to China over the past year.
The constraints have already jolted global markets, with Brent crude surging above $81 per barrel on Monday, marking its highest levels in months. Matt Wright, lead freight analyst at Kpler, highlighted that among the newly sanctioned vessels, 143 oil tankers accounted for more than 530 million barrels of Russian crude last year—42% of Russia’s total seaborne exports.
India and China Seek Alternatives
India and China have been the primary buyers of Russian oil. India imported 1.764 million bpd of Russian crude during the first 11 months of last year, a 4.5% increase year-over-year. Meanwhile, China’s imports, including pipeline supplies, rose by 2% to 99.09 million metric tons (2.159 million bpd) over the same period.
China’s refiners favor Russian ESPO Blend crude, often sold above the G7-imposed price cap, while India primarily relies on Urals crude. Analysts suggest that strict enforcement of sanctions could halt Russian ESPO Blend exports entirely, forcing both nations to seek compliant alternatives.
Middle East and Beyond: The New Frontiers
The sanctions have intensified competition for Middle Eastern and Atlantic Basin oil grades. Spot prices for oil from the Middle East, Africa, and Brazil are climbing as China and India scramble to secure alternative supplies.
“Middle Eastern grades are becoming the primary option, and we may need to look at U.S. oil as well,” said an Indian refining official. This trend is echoed by Harry Tchilinguirian, head of research at Onyx Capital Group, who noted that Indian refiners are unlikely to wait for clarity and are aggressively exploring Middle Eastern and Brent/Dubai-linked alternatives.
Broader Implications
China’s dependency on sanctioned Iranian oil has also led to significant shifts. With sanctions tightening, Chinese refiners are expected to maximize imports of Canadian crude from the Trans-Mountain pipeline and increase reliance on heavier Middle Eastern oil.
Meanwhile, the Biden administration’s recent designation of additional ships handling Iranian crude further complicates global oil logistics. Shandong Port Group in eastern China has banned sanctioned tankers from docking, adding to the logistical hurdles.
A Tightening Market
As sanctions reshape the global oil trade, refiners in Asia’s largest economies are navigating a constrained market. With prices rising and supply chains disrupted, the quest for reliable, affordable crude will drive long-term adjustments in sourcing strategies. The implications of these shifts will likely reverberate across global markets, setting the stage for further geopolitical and economic developments.
Source: (Reuters)
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