On 10 January 2025, the United States decided to increase sanctions against Russian oil. In practical terms, this means that all American entities or companies with a link to the United States are prohibited from trading with the people, companies, ships, etc. on the list of entities under sanctions. The US administration’s pressure point on non-US entities is based on this notion of link. For example, the use of Google by these non-American companies can be considered as a “link” and bring them under US jurisdiction. It is therefore easy to understand the impact that these decisions can have on targeted entities and the hesitations that buyers may have.

In the short term, these sanctions will have a significant impact on Russian oil. The effect on the volume of Russian oil sales could be between 0.5 million barrels per day (MBPD) and 1 MBPD out of a production of around 8.5 MBPD. It would appear that the volume of Russian oil subject to these new sanctions is not negligible. This could have a short-term impact by supporting prices and forcing Russian oil consumers to source their supplies elsewhere, particularly in the Middle East. In the longer term, the impact on prices will depend on the effectiveness of these new sanctions.

Russian fleet and Indian refiners particularly targeted

More concretely, among this set of sanctions, the United States has included two Russian companies and 183 oil tankers on the list (representing 42% of Russian maritime oil exports). The idea is that these ships (also known as the “phantom fleet”) will no longer be able to dock in ports and deliver their oil. Indeed, the previous sanctions, decided in 2022, with the main point being the price ceiling of $60 per barrel imposed on Russian oil, have not worked and companies, mainly Chinese and Indian, are buying Russian oil above this ceiling, but still cheaper than the market price.

As a result, Russia very quickly became India’s leading oil supplier, covering 40% of India's oil imports, compared with 12% before the war. What’s more, of the 183 oil companies sanctioned, 75 delivered oil to India between April and November 2024. These sanctions should therefore pose problems for Indian refiners, at least in the short term. India, which is the country with the highest growth in oil imports (+ 330,000 barrels per day in 2024), could have a short-term impact on the balance of the market.

Moscow is not short of evasive strategies

Faced with these new sanctions, Russia could combine different strategies. Leaving aside the reintegration of official circuits, which would mean that Russian oil would not sell for more than $60, there are various strategies for selling Russian oil. The first is to use the blacklisted ships as storage facilities. This way, if the sanctions are lifted, the stored oil can be sold at better prices without any problems. Iran used this strategy in the 2010s and had more than 100 million barrels (about a day’s global consumption) stored on the water.

A second possible strategy is the creation of new front companies, intermediaries, etc., to break the traceability of oil so that buyers do not know where the black gold sold to them really comes from.

A third strategy is the practical application of the second strategy. While the second strategy tends to muddy the waters from an “administrative” point of view, the third is a practical application involving the transhipment of oil cargoes on the high seas between two ships. While this is a classic manoeuvre, practised with complete transparency, it also exists informally, with boats cutting off their GPS (hence the name “phantom fleet”) so that they are no longer visible, and transhipping their oil to unsanctioned boats.

A fourth strategy, close to the third, is to mix the oils. In other words, sanctioned oil will be mixed with authorised oil and sold under that name. Even if each oil has its own chemical signature, such as its sulphur content, in practice it is impossible to measure everything.

A question of goodwill on the part of buyers

In conclusion, these sanctions should complicate the sale of Russian oil, at least in the short term, and increase costs for the Russian oil industry and its main customer, India. However, Moscow has at its disposal a panoply of circumvention strategies that should limit the effects of these sanctions. What’s more, the impact of these sanctions is also linked to the willingness of Indian and Chinese buyers in particular to apply them or not.

Historical precedents show that sanctions have short-term effects that tend to disappear over time. However, the long-term impact or, to put it another way, the premium borne by buyers because almost 15% of world production (Russian, Iranian and Venezuelan production) is subject to sanctions, remains difficult to assess. So, while it is important to consider this latest set of sanctions, it is even more important to understand the strategy of the various players and to assess it over time in order to gauge its impact on price dynamics. As far as refiners are concerned, it should be noted that India and China could suffer more than others because of their greater exposure to Russian oil.

Manuel Maleki is a PhD economist with the Edmond de Rothschild Group.

This article was originally published in .