- China and India Reassess Russian Crude Imports.
- Sanctions and Lunar New Year Drive VLCC Freight Surge.
- Shadow Tanker Fleet Faces US Treasury Crackdown.
According to Platts, VLCC rates from the Persian Gulf to China saw a dramatic 58% increase to $16.89/mt between Jan. 10-20, following new US sanctions targeting Russian oil trade. The sanctions included the ban of over 180 ships and dozens of entities by the US Treasury. These measures have pressured key buyers, China and India, to explore alternatives to Russian crude, driving up demand for Middle Eastern oil.
Sanctions and Lunar New Year Drive Rate Surge
Analysts say this spike may not necessarily be all due to sanctions. Commodity Insights shipping analyst Fotios Katsoulas said freight rates are being supported by the Lunar New Year. “The Lunar New Year has been providing a positive lift to VLCC freight rates, which heightens the illusion of sanction’s impact. That impact should wear off within a week,” Katsoulas said.
China and India: Cautious Shifts in Crude Sourcing
China and India, major importers of Russian crude, have signaled reduced willingness to import the same volumes. This shift is partly driven by fears of secondary sanctions and a reduced ability to bypass US Treasury restrictions.
China’s Shandong Port Group recently banned ships sanctioned by the US Treasury. This move impacts independent Chinese refineries that rely on Russian crude. India, on the other hand, is less likely to face immediate supply disruptions due to a two-month winding-down period for sanctioned oil purchases, allowing time to adjust sourcing strategies.
Uncertainty Around Long-Term Strategic Shifts
While speculation persists that China may distance itself from Russian crude due to anticipated tougher trade stances from the US, there are no confirmed signs of a strategic shift. Analysts at S&P Global Commodities at Sea noted on Jan. 13 that China’s cooperative relationship with Russia remains unchanged.
Similarly, Indian purchases of Russian crude have been opportunistic, driven by discounts under the price cap. According to Deutsche Bank, greater discounts could again entice Indian refiners despite the sanctions.
Impact on the Shadow Tanker Fleet
Around 95% of newly sanctioned vessels carried Russian-origin crude or refined products. Total transported volumes were 1.8 million b/d in 2024, with 1.5 million b/d shipped to China and India, analysts at Commodity Insights reported on Jan. 11.
“The expectation is that Indian refiners will now increasingly shift back to taking crude from exporting regions such as WAF [West Africa], US,” Adam Lanning, senior tanker analyst at ship brokerage Simpson Spence Young, told Commodity Insights.
Outlook on Freight Rates and Supply Dynamics
The near-term pressure on VLCC freight rates may ease as the Lunar New Year effect wanes. Additionally, the possibility of US-Russia negotiations following the US presidential inauguration on Jan. 20 could reshape the sanctions landscape.
In the meantime, Middle Eastern crude exporters are expected to benefit as Indian refiners shift sourcing towards regions such as West Africa and the US, according to Lanning. Discounts on Russian Urals crude may also increase further, with Platts assessing the Urals discount to Dated Brent at $12.05/b on Jan. 17, below the post-invasion average of $23.59/b.
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Source: S&P Global
