The recent U.S. sanctions against Russia are causing a significant ripple effect in the global oil market. Russia's seaborne oil exports have plummeted, experiencing their most substantial weekly decline since early 2024. This downturn is directly linked to the U.S.'s decision to impose stringent sanctions on major Russian oil companies, Rosneft and Lukoil, which has sent shockwaves through the industry.
On October 22, Washington took action, freezing the U.S.-based assets of these companies and threatening secondary sanctions against any foreign entities that continue to trade with them. This has led to a sharp decrease in Russia's crude shipments.
Reports indicate that the average volume of oil leaving Russian ports fell to 3.58 million barrels per day by November 2, a decrease of 190,000 barrels compared to the period ending October 26. This represents the steepest decline in 22 months. During the week ending November 2, only 26 tankers loaded 21.11 million barrels, a stark contrast to the 34 vessels that carried 26.41 million barrels the week before. This translates to a daily average export of 3.02 million barrels, a 20% drop from the previous week's 3.77 million barrels.
But here's where it gets controversial... A significant portion of the exported oil remains undelivered, resulting in tankers being used as floating storage facilities. Since early September, coinciding with the U.S. doubling tariffs on India, the amount of Russian oil stored at sea has surged by 8%, reaching over 380 million barrels. This is equivalent to more than 100 days of exports. To put this into perspective, at the beginning of the year, approximately 340 million barrels were held in tankers.
India, China, and Turkey, which collectively account for around 95% of Russia's crude exports, have either paused or reduced their imports due to compliance concerns. Some buyers have turned to smaller Russian suppliers not yet affected by the sanctions, but many are seeking alternative sources. For example, Reliance Industries, India's largest private firm, has stated it will comply with U.S. sanctions and switch to crude from the Middle East, the U.S., and Brazil. Similarly, Indian Oil Corp, the country's biggest state-owned refiner, has placed no new Russian orders since the sanctions took effect.
And this is the part most people miss... The sanctions coincide with Ukraine's intensified strikes on Russian oil infrastructure, further diminishing output and exports. This combination of factors has, surprisingly, benefited Western competitors. Profits from refining operations among major companies like ExxonMobil, Chevron, Shell, and TotalEnergies rose by 61% in the third quarter compared to the previous quarter, contributing to a 20% increase in overall earnings.
The EU's Dilemma: In the coming weeks, the EU will decide whether to completely phase out its remaining Russian fossil fuel imports by early 2027 or extend the deadline by another year. This decision presents a significant challenge, requiring the EU to overcome internal resistance and secure new energy sources to replace the billions of euros worth of Russian oil and gas still flowing into the bloc each month.
What do you think? Are these sanctions effective? Do you foresee any unintended consequences? Share your thoughts in the comments below!
