①Just over a week ago, Russia's energy sector was in its worst state in years, with low oil prices and sanctions draining the country’s economy. Millions of barrels of Russian oil were floating at sea, most of it without a destination; ②however, the conflict in the Persian Gulf is now completely reversing this situation.
Just over a week ago, Russia's energy sector was in its worst state in years, with low oil prices and sanctions draining the country's economy of funds. Millions of barrels of Russian oil were floating at sea, most of it without a destination.
However, the conflict in the Persian Gulf is now entirely reversing this situation. Russian oil, which was difficult to sell just last week, has now become highly sought after – the U.S. has eased some sanctions, allowing key buyers of Russian crude to make purchases; and surging oil and gas prices are expected to directly bring higher profits to Russian producers.
Against the backdrop of the largest increase in U.S. WTI crude oil prices since at least 1985, the shift in the U.S. stance on Russian crude oil sanctions has been unmistakably visible over the past week:
First, the U.S. Treasury Department's Office of Foreign Assets Control issued a statement on Thursday (March 5) announcing that it would issue a general license related to Russia, allowing the sale of certain Russian oil to India. The license is valid until April 4, 2026.
Then, U.S. Treasury Secretary Scott Bessent stated in an interview on Friday (March 6) that given the surge in global oil prices, the U.S. government is considering lifting sanctions on more Russian oil.
Bessent explained, “The Treasury has agreed to allow India to start purchasing Russian oil already loaded onto ships… To alleviate a temporary shortfall in global oil supply, we have permitted them to accept Russian oil. We may lift sanctions on other Russian oil.”
“Currently, there are hundreds of millions of barrels of sanctioned crude oil at sea. In fact, by lifting sanctions on this oil, the Treasury can create supply,” Bessent added.
In response, Kremlin economic advisor Dmitriev also commented that he is in discussions with the U.S. regarding this matter, posting on social media: “Western sanctions have proven harmful to the global economy.”
The Importance of Russian Oil Highlighted Amid Middle East Conflict
The latest data shows that the discounts previously demanded by traders when purchasing Russian oil in India have started to reverse, with some sellers now attempting to sell Russian oil at prices above the global benchmark Brent crude.
Naveen Das, senior crude oil analyst at Kpler, a ship-tracking data provider, stated, 'The longer this conflict persists, the more the world will increasingly rely on Russia’s crude oil and refined products.'
This geopolitical shift has also bolstered Russian President Putin's confidence on energy issues. According to media reports, Putin stated on the 4th that given the EU’s intention to completely stop purchasing Russian natural gas, Russia might halt gas supplies to Europe earlier than planned.
Putin pointed out that given the EU’s plans to impose restrictions on Russian gas imports until a complete ban is implemented, Russia could consider halting gas supplies to Europe immediately, which might be more advantageous for Russia. He emphasized that this was not a final decision and that he would instruct the government to study the issue further.
On Friday, Kremlin spokesman Dmitry Peskov also noted that the war in Iran has stimulated demand for Russian energy products.
Russia is one of the largest oil exporters globally. Prior to the Russia-Ukraine conflict in 2022, it was the world’s third-largest oil producer after the United States and Saudi Arabia, as well as one of the top three oil exporters worldwide. Despite sanctions, it maintained this status last year.
However, over the past few years, Russian oil has been sold at record discounts, squeezing the country’s oil industry. In January, Russia’s oil and gas revenues reached their lowest level since July 2020. Higher oil prices would help alleviate Russia’s fiscal pressures and could potentially pull its economy out of a period of stagnation.
The Gulf conflict has led to a surge in oil and gas prices, with global benchmark Brent crude oil rising nearly 30% since the US and Israel launched attacks on Iran this month. These higher prices typically benefit producers worldwide. Meanwhile, the chaos in the Gulf region means that Russia’s main competitors there cannot take advantage of the situation.
Strong interest from Asian buyers leaves Europe in an awkward position once again.
Currently, major Gulf energy buyers in Asia, such as India, Japan, and South Korea, are scrambling to secure supplies from other sources, giving Russia new leverage. At the same time, Europe now needs to compete with Asia for liquefied natural gas cargoes, driving natural gas prices even higher.
According to traders, some Indian refineries have received offers for Russian crude oil, set to arrive at Indian ports this month and next, at a premium of $1 to $5 per barrel over the global benchmark Brent crude. In contrast, discounts in February were more than $10 below Brent.
Tankers and liquefied natural gas (LNG) carriers are barely able to enter or exit the Persian Gulf, through which about 20% of the world's daily crude oil supply passes. QatarEnergy, which produces around 20% of the world’s LNG and related products, halted LNG production following an Iranian drone attack on its facilities earlier this week and declared force majeure two days later.
According to Kpler, there are currently approximately 130 million barrels of Russian crude oil at sea, part of which has already been sold, but a significant portion remains awaiting buyers.
The developments in the Gulf region once again placed Europe in an "awkward" position and reignited concerns about the continent's energy sources. Europe had heavily relied on Russia in the past and has spent recent years striving to diversify imports, relying more on the United States and the Middle East.
Although less than 10% of the EU’s total LNG imports come from Qatar, the production disruption there has triggered a bidding war between European and Asian buyers for the remaining supplies, as both regions are most vulnerable to Middle Eastern supply disruptions and are willing to pay higher prices. According to shipping data trackers and analysts, several LNG tankers fully loaded with energy have been diverted from European destinations to Asia in recent days due to higher prices in Asia.
The combination of these factors has made Putin's threat on Wednesday to cut off the remaining natural gas supplies to Europe more 'damaging' than ever before.
Industry insiders noted that if the Persian Gulf were to remain closed for an extended period, some Europeans are concerned it could force the region to reconsider its hardline stance against restoring energy ties with Russia. Martin Senior, head of European LNG pricing at Argus Media, stated that reneging on commitments to phase out Russian natural gas and LNG would be a 'political disaster.'
Editor/Doris
