Oil Shipping Rates Increase Due to U.S. Sanctions on Russian Oil

Freight rates for oil tankers have surged significantly as the U.S. tightens sanctions on Russian oil trade, compelling traders to secure alternative shipping options. The move has disrupted the global oil supply chain, with countries like China and India scrambling to source crude oil from other exporters, according to industry insiders.

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Impact of U.S. Sanctions on Oil Shipping

In a bid to curtail revenue for Russia, the world’s second-largest oil exporter, the U.S. recently expanded sanctions targeting Russian producers and a "shadow fleet" of tankers often used to transport oil to countries like India and China. Many of these vessels have previously been utilized to ship discounted Russian crude—a market opportunity created after Europe banned Russian oil imports following the conflict in Ukraine. Some tankers in this fleet have also facilitated oil exports from Iran, another nation under heavy sanctions.

Spike in Supertanker Rates

The demand for Very Large Crude Carriers (VLCCs), which can transport up to 2 million barrels of crude, has seen a dramatic rise. On major routes, freight rates have climbed sharply, particularly following Sinopec’s trading arm, Unipec, chartering several supertankers. According to shipbrokers, the rate for the Middle East-to-China route (TD3C) has increased by 39% since Friday, reaching $37,800 per day—the highest level recorded since October.

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Tightening Availability and Price Jumps

Rates for Russian oil shipments to China have also escalated. For instance, Aframax tanker rates to transport ESPO blend crude from Russia’s Kozmino port to northern China have more than doubled to $3.5 million. The sharp rise stems from shipowners demanding significant premiums due to limited vessel availability. Sanctioned tankers are also reportedly stranded near China's Shandong province after a regional ban on their discharge, further constraining supply.

Shadow Fleet Expansion

Analysts predict that the shadow fleet will grow as traders seek unsanctioned vessels to continue shipping Russian and Iranian crude. This transition is expected to tighten supply in the mainstream shipping market, with newly enlisted ships entering the sanctioned fleet. “We expect new ships will be pulled into the shadow fleet over the coming months, tightening supply in the non-sanctioned freight market,” noted analysts from Kpler.

Freight Rate Breakdown Across Routes

The rise in freight costs isn’t limited to a single region:

• Middle East to Singapore: Rates increased by Worldscale (WS) 11.15 to WS61.35.

• Middle East to China: Prices climbed by WS10.40, reaching WS59.70.

• West Africa to China: Rates jumped by WS9.55, hitting WS61.44.

• U.S. Gulf to China: Costs rose by $360,000 over the past week, now totaling $6.82 million.

These soaring rates underscore the far-reaching implications of the U.S. sanctions, which have not only disrupted traditional oil supply chains but also strained global shipping capacities. As countries continue to navigate the sanctions’ impact, further fluctuations in freight rates and tanker availability are anticipated.

Global Energy Market Ripple Effects

The sanctions and subsequent shifts in the oil trade highlight the vulnerability of global supply chains to geopolitical events. Industry players are likely to face prolonged adjustments as they seek compliance while maintaining supply to key markets. This trend could drive investments in alternative energy sources and diversified trade routes to reduce dependency on sanctioned suppliers.

Also Read: Oil Prices Recover in Pre-Holiday Trade as U.S. Economy Shows Strength