The US is considering further easing restrictions on Russian oil! Under the threat of supply cuts in the Middle East, Russian oil has become highly sought after?

Caixin March 8 News (Editor: Xiaoxiang)

Just over a week ago, Russia’s energy industry was in its worst state in years, with low oil prices and sanctions draining the country’s economic funds. Millions of barrels of Russian oil floated at sea, most without a destination.

But now, the situation has been completely reversed by the fighting in the Persian Gulf. Russian oil, which was hard to find buyers for last week, has become a hot commodity—the U.S. has eased some sanctions, allowing key buyers to purchase Russian crude; and soaring oil and natural gas prices are expected to directly boost profits for Russian producers.

Against the backdrop of U.S. WTI crude hitting its largest gain since at least 1985, the shift in U.S. sanctions policy toward Russian oil has been unmistakable over the past week:

First, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced on Thursday (March 5) that it would issue a general license related to Russia, allowing the sale of some Russian oil to India, valid until April 4, 2026.

Then, U.S. Secretary of the Treasury Janet Yellen said 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.

Yellen explained, “The Treasury has agreed to let India start purchasing Russian oil that has already been shipped… To help alleviate the temporary global oil supply gap, we have allowed them to accept Russian oil. We may lift sanctions on other Russian oil.”

“There are currently hundreds of millions of barrels of sanctioned crude at sea. In fact, by lifting sanctions on this oil, the Treasury can create supply,” Yellen added.

In response, Kremlin economic advisor Dmitry Peskov also said he is discussing the issue with the U.S. and posted on social media: “Western sanctions have proven to be harmful to the global economy.”

The Importance of Russian Oil Highlighted Amid Middle East Conflict

Latest data shows that the discounts previously demanded by traders when purchasing Russian oil in India are beginning to reverse, with some sellers trying to sell Russian oil at prices above the global benchmark Brent crude.

Ship tracking data provider Kpler’s senior crude analyst Naveen Das said, “The longer this conflict lasts, the more the world will depend on Russian crude and refined products.”

This geopolitical shift has also boosted Russian President Vladimir Putin’s confidence on energy issues. According to media reports, Putin said on the 4th that, given the EU’s intention to completely abandon Russian natural gas, Russia might stop supplying Europe earlier than planned.

Putin pointed out that since the EU plans to impose restrictions on Russian natural gas imports until a complete ban, Russia could consider halting supplies to Europe now, which might be more beneficial for Russia. He emphasized that this is not a final decision and instructed the government to study the issue.

On Friday, Kremlin spokesperson Dmitry Peskov also said that Iran’s war has stimulated demand for Russian energy products.

Russia is one of the world’s largest oil exporters. Before the 2022 Russia-Ukraine conflict, Russia was the world’s third-largest oil producer after the U.S. and Saudi Arabia, and one of the top three oil exporters. Despite sanctions, it maintained this position last year.

However, in recent years, Russia has been selling its oil at record discounts, squeezing its oil industry. In January, Russia’s oil and gas revenues were at their lowest since July 2020. Higher oil prices will help ease Russia’s fiscal pressure and may help its economy break out of a stagnation period.

The Gulf conflict has caused oil and natural gas prices to soar. Since the U.S. launched strikes on Iran this month, the global benchmark Brent crude has risen nearly 30%. These higher prices typically benefit producers worldwide. Meanwhile, turmoil in the Gulf region means Russia’s main competitors there cannot take advantage of the situation.

Asian Buyers Show Strong Interest, Europe Faces Embarrassment Again

Currently, major Gulf energy buyers in Asia, such as India, Japan, and South Korea, are competing to secure supplies elsewhere, giving Russia new leverage. Meanwhile, Europe now needs to compete with Asia for liquefied natural gas (LNG), as gas prices soar.

Traders say some Indian refineries are now paying premiums of $1 to $5 above the global benchmark Brent crude for Russian oil arriving at Indian ports this month and next. In contrast, February saw discounts of over $10 below Brent.

Oil tankers and LNG carriers are almost unable to enter or leave the Persian Gulf, which supplies about 20% of the world’s oil daily. QatarEnergy, which produces about 20% of the world’s LNG and related products, halted LNG production after Iranian drones attacked its facilities this week and declared force majeure two days later.

According to Kpler, about 130 million barrels of Russian crude are currently at sea, some already sold, but a significant portion still waiting for buyers.

Developments in the Gulf region have again placed Europe in an “awkward” position, rekindling concerns over its energy sources. Europe has historically relied heavily on Russia and has been working to diversify imports, increasingly turning to the U.S. and the Middle East.

Although LNG imports from Qatar account for less than 10% of Europe’s total, production disruptions there have triggered bidding wars among European and Asian buyers for remaining supplies. Both regions are most vulnerable to Middle Eastern supply interruptions and are willing to pay higher prices. According to ship tracking companies and analysts, due to higher prices in Asia, several LNG carriers loaded with energy have shifted from European destinations to Asia in recent days.

These factors have made Putin’s threat on Wednesday to cut remaining natural gas supplies to Europe more “lethal” than before.

Industry insiders say that if the Persian Gulf remains closed long-term, some Europeans are worried this will force the region to reconsider its tough stance against restoring energy ties with Russia. Martin Senior, head of European LNG pricing at Argus Media, said that breaking the promise to gradually phase out Russian gas and LNG would be a “political disaster.”