Before Friday, the Office of Foreign Assets Control had designated 39 tankers carrying Russian oil since October 2023. Of those, 33 have failed to lift cargo since they were listed, according to tracking data of ships compiled by Bloomberg. This is a higher level of disruption than is achieved by similar measures imposed by the UK or the European Union and for more than twice as long, with the first sanctions imposed by either jurisdiction only coming in June 2024.

The latest move includes sanctions against all fleets of specialized tankers used to move crude from key projects in Russia’s Arctic and Pacific regions. Arctic ships carry cargo to the Russian port of Murmansk, where two tankers have also been targeted, and may feel short-changed by the move. But it could hamper ship maintenance work, which is usually done in China.

Shuttle ships operating in the Pacific move Russian oil to China, and Friday’s sanctions could complicate that trade, possibly requiring cargoes to be moved from one ship to another before delivery.

Merchants

OFAC has also targeted “opaque traders willing to ship and sell” Russia’s oil, which “are often registered in high-risk jurisdictions, have murky corporate structures and personnel with ties to Russia, and hide their activities commercial”.

Many of these trading companies were created only after Russia’s invasion of Ukraine in 2022, and some of the early participants have already disappeared, to be replaced by new entities with overlapping owners and many of the same staff.

Actions taken against current oil traders will likely create some short-term disruption, but many are likely to re-emerge under different names.

Ship insurance

Sanctions on two of Russia’s leading providers of protection and indemnity insurance for oil tankers, Ingosstrakh Insurance Company and Alfastrakhovanie Group, may not have much of an impact on flows.

However, the ban on the provision of insurance by these two companies may effectively push some tankers, including Russia’s own fleet, out of mainstream insurance markets. At least temporarily. This will add to concerns already expressed by countries whose waters are already threatened by aging ships carrying Russian oil.

An important question will be the response from India and its oil buyers and regulators, as the country is a key recipient of deliveries covered by Ingosstrakh.

“Removing Ingosstrakh from the market creates a void that will inevitably be filled by night insurers,” the company said by email. He added that he would look for ways to address what he called an unjustified and harmful decision.

Oil services

The sanctions also require US oil services companies to halt operations in Russia by February 27

At least two US-based global suppliers have continued to work in the country even after the Kremlin’s invasion of Ukraine, according to their quarterly reports.

However, the broader restrictions are unlikely to have any immediate effect on Russia’s ability to pump crude, as domestic suppliers, including companies formerly owned by foreign investors, do most of the oil services in the country Former subsidiaries of global oil service providers have retained sufficient equipment, personnel and know-how to maintain Russia’s drilling rates.

Only 15 percent of Russia’s oil drilling market relies on foreign technologies, Oslo-based research firm Rystad Energy A/S estimated a year ago.

Any impact on Russian oil production is likely to be felt only in the long term and most acutely in greenfield projects that require the most up-to-date technologies to pump oil profitably. As a result, Russia’s foray into Arctic reserves as well as offshore field development may slow.

Implementation and execution

Much of the Russian oil trade has already migrated away from Western companies and service providers, reducing the bite of the measures taken so far.

If the sanctions are to be effective, the incoming US administration will have to be willing to take action against buyers of Russian oil.

Indian refineries and those owned by the Chinese government have already shown reluctance to accept cargo carried on sanctioned vessels. But that hasn’t cost them too much when the blacklisted ships were only a small part of the shadow fleet available.

The latest round of US sanctions changes that picture, affecting a larger proportion of the fleet.

–With assistance from Rakesh Sharma and Serene Cheong.

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