China and India pause Russian oil imports amid new US sanctions
In China, there is a lack of interest in March deliveries of oil from Russia following the imposition of new American sanctions on the Russian "shadow fleet", which have led to increased tanker transport costs not covered by these sanctions, Reuters reports. A similar situation has emerged in India.
On 10 January, the US introduced a new package of sanctions targeting, among others, Gazprom Neft and Surgutneftegaz, as well as financial and insurance institutions involved in handling oil and gas transactions, along with over 180 ships belonging to the "shadow fleet", which transport Russian oil in defiance of bans.
As reported by Reuters on Tuesday, these sanctions have already had tangible effects. The primary recipients of Russian oil, China and India, have suspended purchases from Russia because the delivery costs for crude oil via ships not on the sanction list have become prohibitively high.
Reuters calculates that in 2024, oil imports from Russia accounted for 36% of India's raw material imports and approximately one-fifth of imports in China.
In mid-January, the International Energy Agency (IEA) noted in its monthly oil market report that the latest package of American sanctions targeting Russian oil producers and the so-called shadow fleet could significantly disrupt Russian oil supply and distribution chains. The IEA acknowledged that although the sanctions are extensive, their full impact on the oil market and Russian supplies is uncertain.
Will the new sanctions have a lasting impact?
Reuters reported as early as 13 January that China and India started exploring new routes from which they could procure oil. The agency also noted that analysts suggest that the new American sanctions are likely to reduce Russian oil exports in the short term, but Russia might adapt by utilising ships from its auxiliary fleet, which currently remain unsanctioned.
Reuters also mentioned that the actual size of the Russian auxiliary fleet is unknown, though it is estimated to comprise nearly 600 tankers.
Will Brussels take action against Putin?
In mid-January, the European Commission began consultations with member states on a new, 16th EU sanctions package against Russia. The discussions include, among other topics, imposing restrictions on the import of Russian aluminium, including wire, pipes, and foil; further restrictions on agricultural products imported from Russia, including fertilisers; sanctions on liquefied natural gas (LNG), the so-called shadow fleet, and lowering the price cap on Russian oil, as appealed by the Nordic EU countries: Sweden, Finland, Denmark, Lithuania, Latvia, and Estonia.
However, as EU sources admit, there's little chance some of the sanctions proposed by the European Commission will be accepted, as some EU countries won't agree to them. There is consensus on increasing tariffs on certain agricultural goods from Russia and Belarus, including fertilisers. Nevertheless, as EU diplomats claim, member states will not agree to impose sanctions on aluminium imports. Within Brussels corridors, it is said that the topic of Russian aluminium is frequently brought up by the European Commission before each new sanctions proposal to test whether member states' attitudes have changed.
Introducing energy sanctions on Russia, including Russian LNG, which is advocated by Scandinavian and Baltic countries, as well as Poland and the Spanish government, could also be contentious since a majority of EU countries are unlikely to support this proposal.
There are, however, prospects for sanctions concerning the shadow fleet. So far, successive sanctions packages have mainly focused on adding more ships to the blacklist, and currently, there are only 72 ships listed out of approximately 600. However, member states now wish to find effective ways to limit the fleet's activities.
Among the proposed solutions, there has been discussion of mandatory checks on insurance contracts for vessels operating in European waters. The shadow fleet consists mainly of old, dilapidated ships, often uninsured, which means that in the event of an oil spill, no one bears responsibility, posing a risk to EU waters. Within Brussels circles, there's also talk of prolonging port procedures for these ships to render their entry into ports and oil transportation completely unviable.
As for lowering the price cap on Russian oil, the decision rests with the G7 countries, who set the price at $60 (€58) per barrel as early as 2022. On Monday, six countries urged the European Commission via letter to include lowering oil prices in the sanctions list, but the European Commission clarified that the final decision on this matter would depend on G7 partners.