(Bloomberg) — The United States on Friday announced the most comprehensive and toughest sanctions yet on Russian oil trade, just 10 days before Joe Biden leaves the White House to be replaced by Donald Trump as president.
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If these measures remain in place under Trump, the opportunity for these measures to disrupt Russia’s oil exports is greater than anything any Western power has done so far.
Two major producers and exporters were sanctioned, a highly effective program to target individual oil tankers was significantly expanded, traders organizing hundreds of shipments were designated, pivotal insurance companies were named, and two U.S. oil service providers were told to exit.
The move could theoretically reduce what the International Energy Agency expects to be an oversupply of about 1 million barrels per day this year. Brent crude futures, which ended 2024 below $75 a barrel, rose above $80 at one point on Friday, ICE Futures Europe data showed.
This story examines each of the key areas in the context of oil supply.
Surgutneftegas and Gazprom Neft
Imposing sanctions on these two companies is by far the most direct and aggressive step taken by Washington or any other Western power to date.
Between them, the two companies shipped about 970,000 barrels of oil per day by sea in 2024, and the fact that they are classified will be a cause for concern for oil refiners in India as well as state-run companies in China.
To put its seaborne flows into context, it is larger than the global surplus supply that the IEA projects for the global market in 2025. It also represents nearly 30% of Russia’s seaborne exports.
No one is suggesting that both companies’ shipments be stopped completely, but the fact that sanctions have been imposed on them, along with other measures announced, means that disruption cannot be ruled out.
Many carriers
The United States announced sanctions on about 160 individual oil tankers.
This doubles the entire list of ships targeted by the US, UK and EU so far. About 30 of the ships pursued by Washington have already been sanctioned by London and Brussels, but it is important to note how effective US measures have proven so far.
Of all the sanctions imposed on Russia’s oil trade, those imposed by the United States have proven to be the most impactful, evidence that Asian buyers are wary of violating Washington’s measures.
Before Friday, OFAC had identified 39 tankers carrying Russian oil since October 2023. Of those tankers, 33 had failed to lift cargoes since their listing, according to ship-tracking data compiled by Bloomberg. This is a higher level of disruption than similar measures imposed by the UK or EU and over a time period more than double, with the first sanctions imposed by either of these jurisdictions only in June 2024.
The latest measure includes imposing sanctions on entire fleets of specialized shuttle tankers used to transport crude oil from major projects in Russia’s Arctic and Pacific regions. Arctic ships are transporting cargo to the Russian port of Murmansk, where two storage tankers have also been targeted, and you may not be feeling a little overwhelmed by the move. But this may hinder maintenance work on ships, which is usually done in China.
Shuttle tankers operating in the Pacific Ocean transport Russian oil to China, and the sanctions imposed on Friday could complicate that trade, potentially requiring goods to be transferred from one tanker to another before delivery.
Merchants
OFAC also targeted “shady traders willing to ship and sell” Russian oil, who “are often registered in high-risk jurisdictions, have opaque corporate structures and employees with ties to Russia, and hide their trading activities.”
Many of these trading companies were not created until after the Russian invasion of Ukraine in 2022, and many of the early entrants have already disappeared, to be replaced by new entities, with overlapping owners and many of the same employees.
Actions against existing oil traders are likely to cause some disruption in the short term, but many will likely resurface under different names.
Ship insurance
Sanctions imposed on two of the largest Russian companies that provide protection and insurance services for oil tankers, Ingostrakh Insurance Company and Alvstrakhovany Group, may not have a significant impact on flows.
However, prohibiting the provision of insurance by these two companies may effectively push some carriers, including the Russian fleet, out of key insurance markets. At least temporarily. This will add to concerns already expressed by countries whose waters are already at risk from aging ships transporting Russian oil.
An important question will be the response of India, oil buyers and regulators, as the country is the main recipient of shipments covered by Ingostrach.
“Removing Ingosstrakh from the market creates a void that will inevitably be filled by overnight insurers,” the company said via email. She added that she would discuss ways to address what she described as an unjustified and harmful decision.
Oil services
The sanctions also require US oil services companies to cease operations in Russia by February 27
At least two US-based global providers have continued to operate in the country even after the Kremlin invaded Ukraine, according to their quarterly reports.
However, the broader restrictions are unlikely to have any immediate impact on Russia’s ability to pump crude oil, as domestic providers, including companies formerly owned by foreign investors, do the bulk of the country’s oil services. The former subsidiaries of the ISPs have retained sufficient equipment, personnel and know-how to support drilling rates in Russia.
Only about 15% of the Russian oil exploration market depends on foreign technologies, according to estimates by Oslo-based research company Rystad Energy A/S, a year ago.
Any impact on Russian oil production is likely to be felt only in the long term, most clearly in new projects that require the latest technology to pump oil profitably. As a result, Russia’s invasion of Arctic reserves, as well as the development of offshore fields, may slow down.
Implementation and implementation
A large portion of Russia’s oil trade has already migrated away from Western companies and service providers, reducing the impact of the measures taken so far.
If sanctions are to be effective, the next US administration will need to be prepared to take action against buyers of Russian oil.
Indian refineries and those owned by the Chinese government have already shown a reluctance to accept cargoes carried on board sanctioned ships. But that wasn’t too costly for them when the blacklisted ships were just a small portion of the available Shadow Fleet.
The latest round of US sanctions has changed this picture, hitting a larger proportion of the fleet.
-With assistance from Rakesh Sharma and Sirin Cheung.
