Oil Prices Surge as US Sanctions Tighten Grip on Russian Exports

Oil prices climbed for a third consecutive session on Monday, with Brent crude surpassing $80 per barrel, marking its highest level in over four months. The rally is attributed to expanded U.S. sanctions targeting Russian crude exports to major buyers like China and India.

Brent crude futures increased by $1.14 (1.43%) to $80.90 per barrel by 0741 GMT, reaching an intraday peak of $81.49, its highest since August 27. Similarly, U.S. West Texas Intermediate (WTI) crude rose by $1.20 (1.57%) to $77.77 per barrel, hitting a high of $78.39, the highest since October 8.

Both Brent and WTI have gained over 6% since January 8, driven by the U.S. Treasury’s newly expanded sanctions on Russian oil announced last Friday. The sanctions include key producers Gazprom Neft and Surgutneftegas, along with 183 vessels transporting Russian oil, aiming to curb revenues funding Russia’s conflict in Ukraine.

These sanctions are expected to significantly disrupt Russian oil exports, forcing major importers like China and India to shift their sourcing to regions such as the Middle East, Africa, and the Americas. Analysts predict this will elevate global oil prices and shipping costs.

Goldman Sachs analysts noted in a report that the new sanctions present upward risks to their forecast of $70-$85 per barrel for Brent in the short term.

The report estimates that the targeted vessels transported 1.7 million barrels per day in 2024, accounting for 25% of Russia’s oil exports.

The tightening supply has widened Brent and WTI monthly spreads to their most significant backwardation levels since the third quarter of 2024, with prompt prices higher than future months, reflecting tight market conditions.

RBC Capital Markets analysts highlighted that the sanctions, which have doubled the number of tankers restricted from transporting Russian oil, could create logistical hurdles for crude flows.

Many of these vessels had been transporting oil to India and China following earlier Western sanctions and a price cap imposed by the Group of Seven in 2022. Some of these ships were also involved in transporting Iranian oil, which is similarly sanctioned.

Harry Tchilinguirian, head of research at Onyx Capital Group, remarked that the latest sanctions would particularly impact India, given its reliance on sanctioned tankers for oil imports.

While JPMorgan analysts acknowledged that Russia retains some flexibility despite the sanctions, they emphasised that Russia may need to rely on non-sanctioned vessels or offer crude at or below $60 per barrel to access Western insurance, as stipulated by the West’s price cap.