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?

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 with no destination.

But now, the war in the Persian Gulf has completely reversed this situation. 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 rally 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; the license is valid until April 4, 2026.

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

Yellen explained, “The Treasury has agreed to let India start purchasing already shipped Russian oil… 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 oil 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 is highlighted amid Middle East conflicts

Latest data shows that the discounts previously demanded by traders when purchasing Russian oil in India are now reversing, 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 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 gas to Europe ahead of schedule.

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

On Friday, Kremlin spokesperson Dmitry Peskov also said that the Iran conflict has stimulated demand for Russian energy products.

Russia is one of the world’s largest oil exporters. Before the Russia-Ukraine conflict in 2022, Russia was the third-largest oil producer after the U.S. and Saudi Arabia, and one of the top three oil exporters worldwide. 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 natural gas revenues were at their lowest since July 2020. Higher oil prices will help ease Russia’s fiscal pressure and could help its economy break out of a stagnation period.

The Gulf conflict has caused oil and natural gas prices to surge. 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, chaos in the Gulf region means Russia’s main competitors there cannot take advantage of this.

Asian buyers are eager, while Europe faces renewed embarrassment

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 has to compete with Asia for liquefied natural gas (LNG), as gas prices soar.

According to traders, some Indian refineries are now paying $1 to $5 more per barrel for Russian crude arriving at Indian ports this month and next, compared to the global benchmark Brent, which in February was trading at 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 two days later declared force majeure.

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

The developments in the Gulf region have again put 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. These regions are most vulnerable to Middle Eastern supply disruptions 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 combined make Putin’s threat to cut off remaining natural gas supplies to Europe on Wednesday more “lethal” than ever.

Industry insiders say that if the Gulf remains closed long-term, some Europeans fear it 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.”