In a new move to strangle Russia’s energy revenues, the US and UK have imposed sweeping sanctions on the Russian oil and gas industry. The move not only puts direct pressure on Russia but also disrupts global energy flows, with China and India – the two largest customers of Russian oil – being hit hard.
Embargo "kills two birds with one stone"
On January 10, the US Treasury Department, in coordination with the UK, announced new sanctions targeting two leading Russian energy corporations, Gazprom Neft and Surgutneftegas, and placed restrictions on 183 Russian oil tankers. These vessels account for about 25% of Russia's energy exports in 2023, mainly crude oil.
Blocking these oil tankers would not only deprive Russia of a major source of revenue, but would also cause difficulties for China and India, two countries that have consumed the bulk of Russian oil since the outbreak of the Ukraine conflict.
China and India struggle to find alternative sources
The majority of sanctioned vessels are carrying Russian oil to China, forcing traders in China and India to look for oil from the Middle East, Africa, and the Americas, according to Matthew Wright, a senior analyst at Kpler.
A Singapore-based trader told Reuters that sanctioned vessels used to transport 900,000 barrels of oil a day to China, and that with the new sanctions, that amount of oil would “fall straight off the cliff.”
Independent refiners in China’s Shandong province – the most active buyers of Russian oil – held emergency meetings over the weekend to assess whether oil cargoes already in transit could continue to be received after the sanctions were announced.
In India, the oil minister, petroleum secretary, and heads of state refineries are also busy discussing the future of the oil industry. Some forecasts suggest a severe disruption lasting three to six months, affecting about 800,000 barrels per day of imported oil.
Oil prices rise, world energy market fluctuates
Oil prices rose to a four-month high immediately after the ban was announced. Brent crude rose 1.7% to $81.15 a barrel, while WTI crude rose 1.9% to $78 a barrel on the morning of January 13. Both are up 8% so far in 2025.
However, experts say the embargo is not a “game changer.” Rising US oil production and falling demand in China due to the economic slowdown will limit the price increase, according to Vishnu Varathan, head of macro research at Mizuho.
In response to the sanctions, Russia is expected to launch countermeasures. According to Goldman Sachs experts, Russia could reduce oil prices to encourage trading through a “shadow” fleet and attract price-sensitive customers in new markets.
The embargo once again confirms the rapid shift in global energy flows since the outbreak of the Russia-Ukraine conflict. With the United States continuing to lead the tightening of the Russian economy, the global energy landscape is entering a new phase of uncertainty.
