Chinese and Indian Refiners Shift Focus Amid U.S. Sanctions on Russian Oil

 Chinese and Indian refiners are set to increase oil imports from the Middle East, Africa, and the Americas as new U.S. sanctions on Russian producers and shipping vessels disrupt Moscow's supply to its primary markets, according to industry analysts and traders.

The U.S. Treasury announced sanctions on Friday targeting Russian oil producers Gazprom Neft and Surgutneftegas, alongside 183 vessels involved in shipping Russian oil. These measures aim to curtail revenues that Russia relies on to fund its war in Ukraine. Many of the sanctioned tankers previously transported oil to India and China, which have become Russia's top oil customers following Western sanctions and a G7-imposed price cap in 2022.

Impact on Russian Oil Exports

The new sanctions are expected to severely impact Russian oil exports. Analysts project significant disruptions in supply chains, with independent Chinese refiners anticipated to reduce refining output in response.

"The sanctions will drastically reduce the fleet of ships available to transport Russian crude in the short term, driving up freight costs," noted Matt Wright, lead freight analyst at Kpler. Among the sanctioned vessels, 143 are tankers that handled over 530 million barrels of Russian crude last year—42% of the country’s total seaborne exports.

Approximately 300 million barrels of this oil were shipped to China, while India received the majority of the remaining volumes. A Singapore-based trader added that these vessels transported nearly 900,000 barrels per day (bpd) of Russian crude to China over the past year, a figure now expected to drop dramatically.

Shifts in Sourcing

India and China, the largest importers of Russian oil, are turning to alternative suppliers in response to the sanctions. Middle Eastern, African, and American crude producers are likely to benefit from increased demand.

"Spot prices for grades from the Middle East, Africa, and Brazil have already risen due to tightened supplies of Russian and Iranian oil," said an Indian oil refining official.

India, which imported 1.764 million bpd of Russian crude in the first 11 months of last year—36% of its total imports—will likely prioritize Middle Eastern grades and potentially increase imports from the U.S.

For China, which imported 99.09 million metric tons (2.159 million bpd) of Russian crude during the same period, a similar shift is expected. China’s preference for Russian ESPO Blend crude, which often trades above the G7 price cap, may compel refiners to seek heavier Middle Eastern oil and Canadian crude via the Trans Mountain Pipeline (TMX).

Rising Prices and Market Tightening

Industry analysts predict that the sanctions will tighten the oil market further. Harry Tchilinguirian, head of research at Onyx Capital Group, stated, "We are likely to see aggressive bidding for February-loading cargoes from producers such as Oman or Murban, driving strength in the Dubai benchmark."

The shifting market dynamics are also affecting Iranian crude exports, as additional sanctions prompted China’s Shandong Port Group to restrict sanctioned tankers from accessing its facilities. This move, coupled with existing challenges in the Russian oil supply chain, underscores the mounting pressure on refiners to secure compliant alternatives.

A Tightening Outlook

As refiners navigate the evolving landscape, the sanctions are poised to reshape global oil trade flows, with the Middle East and the Americas emerging as critical suppliers to Asia's largest economies. This realignment underscores the increasing geopolitical influence on energy markets and the challenges faced by refiners in maintaining stable supply chains amid tightening restrictions.