Over the past 24 hours the US announced sanctions on Rosneft and Lukoil and the EU has released its long-awaited 19th Russian sanctions package. Over the same time, Brent has risen over 5% to around $66/bbl. TD3c balmo FFAs moved from an already strong WS82 yesterday to WS88 today. November is up from WS79 to WS92; December is up from WS77 to WS88; Cal 2026 is up nearly 5%.
The new US sanctions target Russia’s two biggest oil producers, responsible for around half of Russia’s crude exports. This marks the single biggest sanctions intervention and pressure on Russia since January 2025, and a first for the Trump administration. Today, the EU ratified its long-awaited 19th Russia sanctions package, targeting a further 117 vessels (around 30 of which were sanctioned for the first time) and advancing a ban on Russian LNG imports by a year to 2027. The EU sanctions have specifically targeted Chinese importers, following the UK’s actions last week to sanction the Yulong Refinery in Shandong. The UK had already sanctioned Rosneft and Lukoil last Thursday. Europe’s tighter price cap mechanism for Urals, introduced over the past few weeks, is now largely irrelevant next to the bigger US sanctions.
With Gazprom Neft and Surgutneftegaz already sanctioned, virtually all Russian seaborne oil exporters are now under US sanctions.
Until now, UK and EU sanctions on Russia have largely failed to interrupt the flow of its oil to India and China. Sanctions on individual tankers have caused only temporary logistical issues
Additionally, the price cap has been key to facilitating Russian exports. European-operated tankers have until now moved around 39% of Russian diesel exports and 26% of Urals. The lower Urals price cap was looking likely to change this and make Russia more reliant on the dark or grey fleet, but now this is a moot point.
Compliant ships to benefit
Russia will have serious challenges in keeping up its crude export volumes.
India says no
One third of India’s crude exports come from Russia. India’s Nayara refinery - sanctioned by the EU in July for its Russian crude feedstock - is not a model Reliance will want to replicate. Once sanctioned, Nayara was no longer able to source crude from anywhere other than Russia.
Reliance currently imports around 620 k/bd of Russian crude oil (excl. CPC blend) according to cargo tracking data, or around 45% its total crude imports.
Moving forward, Reliance is unlikely to risk secondary sanctions from the US and face the same challenges as Nayara. Assuming Reliance replaces Russian bbls by increasing its imports proportionally from its current sources of non-Russian crude, the refiner could take around 410k b/d (two thirds) of its crude from the Middle East on compliant VLCCs and Suezmaxes. For the remaining volumes, around 149 k b/d would arrive from the Americas (USGulf, Carribbean, South America), mostly on VLCCs. The remaining 62 k b/d would come from the CPC terminal in the Black Sea, which is exempt from the ban on Russian oil. This would travel on compliant Aframaxes and Suezmaxes.
Looking at India as a whole, excluding Nayara, around 1.33m b/d of Russia crude imports, or 30% of India’s crude imports, will need to be replaced. We calculate around 933 k b/d should come from the Middle East Gulf, 133 k b/d from West Africa, 200 k b/d from the Americas and 67 k b/d from the CPC terminal.
China says maybe
We think it is unlikely that China will be able to absorb Russian crude barrels displaced by India. More than 43%, or around 662 k b/d of China’s Russian crude imports go outside of the Shandong region to the state-owned refineries or storage (likely an underestimate as some state-owned refinery-bound volumes also come into the Shandong region). We can assume the state-owned refineries will no longer import these volumes for fear of Russian sanctions. We can also assume that the roughly 300k b/d of Russian crude imports that go to Turkey will need to be redirected.
China’s teapot refiners in Shandong are holding all the cards. They stand as the only likely buyers – outside of Nayara - of displaced Russian bbls.
Shandong refiners could be asked to absorb around 2.33 m b/d, on top of the 507k b/d of Russia’s crude they already import. Shandong’s total crude imports are around 3.3m b/d, so any additional barrels taken from Russia would have to displace other sanctioned barrels from Iran or Venezuela.
Considering floating storage of sanctions crude barrels has built precipitously as Shandong’s import appetite has recently waned, this seems an unlikely outcome.
Due to the threat of secondary sanctions on any vessel and buyer that handles cargo from sanctioned Russian producers, the trade of Russian oil to Shandong refineries will rely more on dark fleet tactics commonly seen in the Iranian trade. To continue exporting its crude, Russia will likely be forced into a race to the bottom to discount its cargoes against Iranian and Venezuelan barrels, as well as engage in more inefficient logistics to accomplish the transport (STS, dark discharges etc).
We also reiterate our stance from last week, that sanctions on Rosneft and Lukoil will make what is left of the Russian refined product trade considerably more difficult. A lack of price cap compliant tonnage, which accounted for on average 42% of Russian diesel exports over the last six months, will push the CPP trade further onto the shadow fleet.
What happens next? It rather depends:
Will it succeed in bring Putin to the negotiating table?
Yes
Will that produce a lasting truce on terms acceptable to Europe and Ukraine?
Yes.
Russian oil would once again flow to Europe. This would shrink Russian origin tonne miles for Afra’s, Suez, LR1, MR, but also significantly cut demand for older tankers. Tankers of more than 20 yrs old tankers are currently moving about 33% of Russia’s oil. These would find very little use in a world of un-discounted oil. The loss of Russian flows to India would also be offset by growth in Indian imports from elsewhere in the Atlantic Basin, supporting VLCC and Suezmax sectors. Aframaxes would lose the most in terms of tonne miles but would gain the most in terms of lost carrying capacity.
No.
War continues, but Ukraine’s defence is left increasingly to Europe. European oil ban/sanctions remain intact. Unlikely to see US lift today’s Russian sanctions + Russia-linked tariff under these circumstances. But if they did, some of the younger (sub-17 Yr old) sanctioned Aframaxes would possibly find their way back into the mainstream fleet. 27% of Aframax/ LR2 fleet is currently sanctioned by either the US or EU/UK (the highest % of all sizes of tanker). Of the 312 sanctioned Aframax/LR2s (all agencies), 41 are both sanctioned by OFAC and under 17 years old.
No
Will latest sanctions finally dent Russia’s seaborne crude oil exports?
Yes
35% of Russian seaborne oil exports was until recently moving on compliant tankers under the price cap mechanism. The US sanctions on Rosneft and Lukoil effectively bars compliant tankers from moving Russian oil. These tankers return to compliant trades. Compliant trades will replace most of the lost Russian bbls, but these bbls will not necessarily support the same vessel class. Aframax/LR2 sector is the most exposed, particularly if lost Russian Aframax flows to India are backfilled from the Atlantic Basin on Suezmaxes or VLCCs. If Russian seaborne Urals flows fall by more than 35%, compliant tankers will benefit at the expense of Russia’s shadow fleet. China would likely stop its stock building activity that has been underway since the start of the year. Chinese teapot refineries would see margins fall, and utilisation rates cut. Situation would continue until oil prices become uncomfortably high.
No
While India looks likely to quickly drop Russian bbls following the latest round of sanctions, China’s Urals demand could increase, as it did briefly following the EU sanctions on Nayara. But China is already taking in higher volumes of discounted Urals than normal due to the Ukraine’s drone attacks on Russian oil refineries and higher Russian crude exports. Partly as a result, Iranian bbls are already backing up as teapot capacity hits its limits. From here on it is a race to the bottom. Venezuela, Russia and Iran will compete for limited teapot demand. If Russia discounts the most heavily, higher Chinese imports of Urals could boost overall tanker tonne miles, possibly bringing in more sanctioned VLCCs into the trade via STS.
Will the West tighten sanctions, perhaps including US sanctions on Russian natural gas exports?
Yes.
Realistically there is not a lot that even tighter sanctions can do to prevent the Chinese demand for Russian oil bbls. Until now Chinese state-owned refiners have been importing Russian (but not Iranian) oil. The Rosneft/Lukoil sanctions restrict Chinese demand to the independent sector, which has thus far shrugged off such measures. Threat of tighter US tariffs on China will increase the likelihood of China retaliating with a ban on rare earth exports. As such they would be unlikely to hold for long.
No.
See above