WASHINGTON : While Washington has allowed a brief grace period until November 21 to wind down operations, analysts warn that the move marks a significant escalation in the global energy standoff.
The U.S. Treasury Department on Wednesday imposed sanctions on Rosneft and Lukoil, citing Moscow’s “lack of serious commitment” to ending the war in Ukraine. The move, aimed at “degrading” the Kremlin’s ability to finance the conflict, could reshape crude flows that have increasingly shifted toward Asia since the West introduced a $60 price cap in 2022.
Together, Rosneft and Lukoil account for roughly half of Russia’s more than four million barrels per day of crude exports, much of which is shipped to China and India. In September alone, China imported about two million barrels per day of Russian oil, while India received around 1.6 million.
India’s refining sector faces particular strain. State-run refiners such as Indian Oil, Bharat Petroleum, and Hindustan Petroleum, alongside private players like Reliance Industries and ONGC, are among the most exposed, according to Kpler data. Rosneft’s nearly 50% stake in Nayara Energy, which operates the Vadinar refinery in Gujarat, adds another layer of vulnerability.
Following the sanctions announcement, Indian refiners began reviewing contracts to ensure no direct dealings with Rosneft or Lukoil, Reuters reported.
Chinese refiners, too, are treading carefully. While China National Petroleum Corporation holds pipeline agreements with Rosneft, it has no long-term contracts for seaborne crude. Experts believe that while a complete shutdown is unlikely, a temporary hiatus in Russian oil shipments appears inevitable.
The sanctions will also complicate logistics and payments, effectively raising costs for buyers and squeezing Russia’s profits, a key U.S. objective.
As Asian buyers scramble for alternatives, OPEC producers, particularly Saudi Arabia, could benefit. “There is spare capacity within OPEC right now,” noted John Kilduff of Again Capital. “But the increased demand for non-sanctioned supply will likely drive prices up.”
Oil markets reacted swiftly to the announcement, with Brent crude jumping 3.7% to $64.91 per barrel and U.S. crude rising nearly 4% to $60.8. Analysts say both China and India may now lean more heavily on Middle Eastern suppliers to offset the Russian shortfall.
U.S. sanctions on Rosneft and Lukoil threaten China's and India's energy supplies, as these companies account for a significant portion of Russian oil exports. The sanctions, aimed at undermining Russia's war efforts, may lead to increased reliance on Middle Eastern oil, potentially driving up prices. Both nations are reviewing contracts to mitigate the impact.