Donald Trump sanctions impact: Russia crude available at highest discount in a year; India, China cut purchases

Donald Trump’s sanctions on two of Russia’s major oil firms seems to have had the impact that the US was looking for. China and India, two of the largest purchasers of Russian crude oil, have cut back on purchases following the sanctions on Rosneft and Lukoil.

According to a Reuters report, the gap between Russian oil prices and Brent crude in Asia has reached its highest level in a year, as leading refiners from India and China cut back on purchases following new US sanctions.

Russian Urals crude's price differential to Brent has increased by $2 to approximately $4 per barrel for December deliveries. This is the highest discount level in roughly a year. However, the current discount levels are still not as high as those seen when Western sanctions came into effect in 2022. At that time, discounts on Russian crude had risen to approximately $8 per barrel.

But this indicates increasing pressure on Russia's oil earnings, which are vital for Moscow's fiscal stability.

The US has recently announced stringent sanctions against Russian petroleum companies Lukoil and Rosneft, with November 21 as the final date for completing any outstanding transactions with these organisations.

India, China cut back on Russian oil buys
Leading Indian refineries, including Hindustan Petroleum Corp, Bharat Petroleum Corp, Mangalore Refinery and Petrochemicals, HPCL-Mittal Energy, and Reliance Industries, have halted Russian oil orders scheduled for December delivery, according to the Reuters report. These five companies collectively represent approximately 65% of India's Russian oil purchases.

At the same time, major Chinese state oil companies have also ceased purchasing seaborne Russian oil following American sanctions on Rosneft and Lukoil, the report said.

This has resulted in ESPO Blend oil trading at discounted rates in Chinese ports. The simultaneous withdrawal by India and China, Russia's principal buyers, risks leaving substantial Russian oil volumes unsold.

Sources quoted in the report indicated that the Asian market for Russian oil has become segmented, with non-sanctioned supplies commanding premium prices, whilst sanctioned suppliers or vessels must offer substantial discounts. India's overall demand for Russian oil has notably decreased, with December imports projected to decline considerably.

This reduction in Russian oil sales coincides with President Vladimir Putin's scheduled visit to India and continued American diplomatic pressure on both India and China to reduce Russian imports. Economic experts suggest that increasing discounts could adversely affect Moscow's revenue streams.