US expands tariffs on Russian oil: Why it matters | Oil and Gas News

The United States has announced another 30-day extension of sanctions relief for countries that buy Russian oil and crude oil already loaded on ships at sea, as global energy markets have been disrupted by the US-Israel war on Iran.

Writing on X on Monday, Treasury Secretary Scott Bessent announced that the US would provide additional funding “to allow vulnerable countries to temporarily access Russian offshore oil”. It will be up until June 17.

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“This increase will provide more flexibility, and we will work with these countries to issue specific permits if needed. This permit will help stabilize the oil market and ensure that oil reaches the most vulnerable countries,” he wrote.

“It will also help redistribute existing supplies to countries that need them the most by reducing China’s ability to store cheap oil,” he said.

The US issued its first 30-day freeze on Russian oil and gas supplies in March in an effort to stabilize global energy markets after oil prices soared above $100 a barrel due to the US-Israeli attack on Iran. In April, Bessent told the Associated Press that Washington had no plans to renew the exemption.

But energy markets have been unable to stabilize amid ongoing peace talks between the US and Iran, as well as the closure of the Strait of Hormuz, a key waterway through which about 20 percent of the world’s oil and gas is shipped during peacetime, and the US blockade of Iranian ports. The closure of the canal, which is the only shipping route from the Gulf to the open sea, has “blocked” 20 million barrels of Gulf oil per day, George Voloshin, an independent analyst based in Paris, told Al Jazeera in March.

In addition, European sanctions on Russian oil – which were in place since the invasion of Ukraine in 2022 – remain in place.

Will an increase in US withdrawals help stabilize the energy market? What does this mean for Russia? Here’s what we know:

Is Russian oil at sea?

According to the analytics firm Kpler, there are currently about 113 million barrels of oil or liquids (Mbbl) of Russian crude oil loaded on ships and at sea. Russian crude oil is running at around 106Mbbls.

Johannes Rauball, chief crude analyst at Kpler, told Al Jazeera that Russia’s floating oil storage – oil that is stored on fixed tanks waiting for buyers or other shipping instructions – has fallen significantly since the beginning of the year from a level of 19Mbbls at the end of January to 7Mbbls now.

“In recent months, Russian exports have been forced by the ongoing Ukrainian air strikeswhich has disrupted export operations and reduced the volume of shipments.” As a result, Russia produces about 9.1 million barrels per day (bpd), below OPEC+’s average of 9.5 million bpd, he said.

Who is buying Russian oil?

Despite these difficulties, Moscow is continued to export oilwith India and China as regular buyers. This is despite the fact that US President Donald Trump has released a A promise from Indian Prime Minister Narendra Modi stop buying Russian oil in October last year. Moscow exported 1.62 million bpd of crude oil to India in September, about a third of its oil imports.

However, last month, Kpler reported, Russian oil exports to India stood at more than 2 million bpd compared to 1.72 million bpd the previous month. Exports to China fell slightly from 1.3 million bpd, but remained firm at 1.05 million bpd.

On Monday, Sujata Sharma, joint secretary at India’s Ministry of Petroleum and Natural Gas, told reporters that New Delhi had bought Russian oil before Washington removed it from the oil quota. “Regarding the withdrawal of America from Russia, I want to emphasize that we have been buying from Russia before … before we were handed over, during the amnesty and now again,” he said.

He stressed that India is not facing a shortage of oil.

“Abandonment or cancellation, it will not affect our property, and all efforts have been made,” Sharma said.

In a May 18 briefing note, Kpler analyst Sumit Ritolia wrote that it is difficult to see India reimbursing Russia’s economy even if sanctions are reinstated.

“The issue is increasingly about security and economics rather than just sanctions… With the flow in the Middle East still uncertain, Russian crude continues to bring positives through prices and stability of non-SoH (stock on hand),” he wrote.

With the lifting of the increased sanctions, Anna Zhminko, a market researcher at the Vortexa marine research firm, told Al Jazeera that Russian oil exports are also expected to increase.

“We may see Russians reaching other Asian countries, for example, Brunei, Indonesia, the Philippines, but India and China will remain the biggest buyers of Russian oil even if they are removed,” he said.

What does the lifting of sanctions mean for Russia?

When the first round of US sanctions took place in March, there was a dispute at sea over Russian oil shipments. That same month, Bloomberg reported that at least seven Russian oil tankers had diverted from China to India, citing information from Vortexa, a data analysis group.

Then, Indian media quoted Rakesh Kumar Sinha, special secretary in the Ministry of Ports, Shipping and Water, to confirm that the Aqua Titan, a Russian oil tanker bound for China, is expected to arrive at New Mangalore Port on March 21, chartered by Mangalore Refinery and Petrochemicals Limited (MPCL).

Directing oil from China to India, which was planning last year to buy less Russian oil under pressure from the Trump administration, works in Moscow’s favor, Zhminko said, because it means it can do more business over shorter distances.

“Prior to the Middle East conflict, India tried to diversify away Russian oil. In doing so, we saw more oil on the water and larger volumes going to China,” he said. “But going from Russia to China vs India is a long way, which made things difficult.”

Russia has not directly commented on Bessant’s recent announcement, but in March, when the first tariff was announced, Kremlin spokesman Dmitry Peskov said that the Trump administration’s goal is to stabilize energy markets around the world.

“In this case, our interests coincide,” he said.

However, Ukraine and its European allies criticized Washington’s decision, saying that the withdrawal would help the Russian economy by raising oil prices.

On Monday, after the latest announcement by the Trump administration, US Senators Jeanne Shaheen (New Hampshire) and Elizabeth Warren (Massachusetts) denounced it as an “unprotected gift” to Russian President Vladimir Putin, Reuters reported.

“Every dollar the Kremlin gets from this license helps Putin finance his illegal war against Ukraine and the killing of innocent Ukrainians,” he said in a statement. He added that the lifting of US sanctions did not reduce domestic oil prices or stabilize global energy markets.

According to the International Energy Agency, in April, total Russian crude oil exports rose by 250,000 bpd, to 4.9 million bpd. Since the start of the war in Iran, the price of Brent crude – the international benchmark – has risen from $66 per barrel to over $100. On Tuesday, it was trading around $110.

Russia’s Urals crude, by comparison, is trading between $97 and $100 a barrel – down from a pre-war price of under $60. A price of $100 per barrel means that Russia receives $490m a day from oil sales despite sanctions. It is important to note that this is an average price – actual sales prices vary from country to country.

Will oil prices go down?

On Monday, Brent benchmark prices rose nearly 2.6 percent to close at $112 a barrel amid fears of another US attack on Iran. But on Tuesday morning, they returned to around $110 a barrel after Trump announced that the planned attack on Iran would be stopped.

Zhminko also said that since there is no sign of easing restrictions on shipping through the Strait of Hormuz, prolonging the lifting of sanctions would reduce pressure on the existing market.

“But the price support is as low as you can get for Russian oil – not all buyers will choose such goods even if they are removed due to other problems – wages, shipping methods, no change in EU and UK laws,” he said.

Hamad Hussain, an economist in the United Kingdom from Capital Economics, told Al Jazeera that despite increasing the US sanctions on Russia and trying to improve supply and reduce the pressure on oil prices, the effect of the discount on prices will be limited, because it only applies to oil that enters already in mid-April.

“As a result, the oil produced in the last month by Russia will remain under sanctions, which means that the additional illegal oil that can be bought is likely to be limited,” he said.

“In any case, the amount of oil lost from the Middle East exceeds the number of Russian barrels lost at sea. Therefore, oil prices are expected to continue to rise as long as traffic through the Strait of Hormuz is disrupted,” he added.