U.S. Sanctions Disrupt Global Oil Trade, Impacting Prices and Demand

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Tightened U.S. sanctions on Russia, effective January 10, have severely disrupted the global oil trade, particularly affecting discounted Russian crude shipments to China and India. Analysts Florence Tan and Nidhi Verma report that these sanctions aim to limit Moscow’s oil revenue in response to its 2022 invasion of Ukraine. Consequently, millions of barrels remain stranded on vessels, prompting traders to seek alternatives from Middle Eastern and African sources, which has led to rising oil prices.

As traders scramble for options, demand for Middle Eastern crudes has surged, pushing up premiums for benchmarks like Oman and Dubai. In India, refiners are now only interested in Russian oil from non-sanctioned sources, which has narrowed available cargo options and increased costs. This shift comes after Reliance Industries established a significant deal with Russia's Rosneft, worth $13 billion annually.

Goldman Sachs estimates that Russian oil volume floating on ships has increased by 17 million barrels since the sanctions, with projections suggesting a total rise to 50 million barrels in the coming months. The ongoing volatility in the market underscores the growing impact of geopolitical tensions on global energy supply.

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