The global oil market faced renewed turbulence after the US Treasury on 10 January 2025 expanded sanctions against Russian oil giants Gazprom Neft and Surgutneftegas. Set to take effect on 27 February 2025, these measures target a broad network of actors in Russia’s oil production and export system, including 183 shadow fleet vessels, dozens of oil traders, over 30 oilfield service providers, insurance companies, and energy officials. Luxembourg-based Gazprom Neft International SA was also included in the sanctions.
The market response was swift. Oil prices surged 1.9% on Monday 13 January, following a 3% rise on Friday after the announcement, pushing Brent crude above $81 a barrel. The sanctions are expected to intensify inflationary pressures, strain global economies and complicate monetary policy, particularly if the oil cartel Opec does not increase production to offset supply disruptions.
Revenue
The new sanctions mark a significant departure from previous US policies, which imposed price caps at $60 per barrel to limit Russia’s profits while maintaining market stability. By removing the cap, the current measures signal a more aggressive approach. The aim, according to the US Department of the Treasury and Department of State, is to cut off the revenue streams that Russia relies on to fund its war against Ukraine and other destabilising activities.
Russia’s shadow fleet, estimated by energy and maritime data and analytics provider Kpler to account for 40% of seaborne oil exports, mostly to China and India, is a key focus of these sanctions. With such a large proportion of Russia’s oil shipments under scrutiny, the ripple effects could extend far beyond Russia’s borders.
The sanctions are likely to hit China and India particularly hard, as the largest and third-largest importers of oil, respectively. Both nations have relied heavily on discounted Russian crude, benefiting from cost savings that have helped stabilise their economies. The heightened sanctions, however, could disrupt these supply chains, driving up input costs for refiners and forcing them to seek alternative suppliers at higher prices.
Consequences
For consumers, the immediate impact will be felt through rising petrol and diesel prices at the pump, which could further fuel consumer inflation and intensify the financial burden on households and businesses. The European Central Bank, already grappling with its 2% inflation target while attempting to revive a sluggish economy, may be forced to slow down interest rate cuts, potentially hindering the economic recoveries of member states.
Russia will likely attempt to mitigate the impact by deepening ties with non-aligned nations, particularly China and India, offering deeper discounts or engaging in barter arrangements to sustain export volumes. Additionally, Moscow is expected to continue using the shadow fleet and explore alternative methods to blend or reroute shipments, thereby circumventing the sanctions.
However, without increased output from Opec and other producers, the oil market is now expected to remain tight--at least for the first half of 2025. Elevated prices will add to the economic challenges faced by nations dependent on energy imports, especially in developing markets. The ripple effects could also hinder progress toward renewable energy transitions and further strain supply-chain as high prices and geopolitical instability dominate the energy discourse.
While the sanctions may not immediately halt Russia’s military offensive in Ukraine, their impact on global oil markets is already evident. The US prohibition on Russian oil, effective from 27 February 2025, signals the end of an era of stable oil prices.