Oil Prices Surge Amid New US Sanctions Targeting Russian Supply

Oil prices have continued to rise for the third consecutive session on Monday, with Brent crude exceeding $81 a barrel, marking its highest level in over four months. This increase is largely driven by expectations that new U.S. sanctions will significantly impact Russian crude oil exports to major buyers, particularly China and India.

As of 0113 GMT, Brent crude futures experienced an increase of $1.48, or 1.86%, reaching $81.24 per barrel. Intriguingly, the price peaked at $81.49 during the day, the highest recorded since August 27.

Meanwhile, U.S. West Texas Intermediate (WTI) crude saw a rise of $1.53, equivalent to 2%, bringing it to $78.10 per barrel after hitting a high of $78.39, the most elevated price since October 8.

Since January 8, both Brent and WTI prices have surged by more than 6%. This upward trend follows the U.S. Treasury's announcement of broader sanctions on Russian oil last Friday. The new measures target key producers such as Gazprom Neft and Surgutneftegas, along with 183 vessels involved in the shipment of Russian oil. The intent behind these sanctions is to curb the revenue that Moscow has used to finance its ongoing conflict in Ukraine.

The anticipated consequences of these sanctions are considerable. Analysts suggest that Russian oil exports could face severe disruption, compelling China and India—the world’s top two oil importers—to seek alternative crude supplies from the Middle East, Africa, and the Americas. This shift in sourcing is expected to elevate both oil prices and shipping costs.

According to analysts from RBC Capital, "The new Russian sanctions from the outgoing administration represent a net addition to supply at risk, creating more uncertainty for the first quarter outlook." It is estimated that the latest round of sanctions will impact ships responsible for transporting an average of 1.5 million barrels per day of Russian crude oil by sea in 2024. This includes approximately 750,000 barrels per day heading to China and 350,000 barrels per day destined for India.

The analysts further noted that the doubling of sanctioned tankers for transporting Russian oil could present a significant logistical challenge to crude oil flows following the invasion. Many of the vessels targeted in the most recent sanctions have been instrumental in supplying oil to India and China after earlier Western sanctions and a price cap imposed by the Group of Seven countries in 2022 rerouted Russian oil trade from Europe to Asia. Some of these ships have even transported oil from Iran, which is also under sanctions.

Harry Tchilinguirian, the head of research at Onyx Capital Group, commented, "The last round of Office of Foreign Assets Control (OFAC) sanctions focusing on Russian oil companies and a vast number of tankers will have significant implications, especially for India."

Oil, Sanctions, Russia