Russia's ESPO oil transport costs to China triple in wake of Biden sanctions

The cost of transporting Russian ESPO crude oil to China has more than tripled following the introduction of new US sanctions targeting Russia’s oil sector, Bloomberg reported on January 16, which cited unnamed traders. On January 13, freight rates for shipments from Kozmino port on Russia's east coast to China surged to $5-5.5mn, compared with $1.5mn prior to the sanctions.

The US Biden administration introduced what it described as its most extensive sanctions against Russia’s oil and gas sector yet on January 10, aiming to give Ukraine and the new Trump administration more leverage in widely expected ceasefire talks that may begin soon. Among those targeted were major producers Gazprom Neft, Surgutneftegas and subsidiaries of Rosneft, and 183 oil, petroleum product and chemical tankers, as well as floating storage units, LNG carriers, supply ships and tugboats.

Traders who spoke with Bloomberg said they anticipated further increases in transport costs to come as a result of the new restrictions.

According to the International Energy Agency (IEA), approximately 22% of global seaborne oil shipments in 2024 involved vessels now subject to these restrictions. While the IEA refrained from quantifying the impact of US sanctions on Russian and Iranian oil exports, it noted that the measures would complicate logistics for both countries.

The sanctions have already disrupted Russian oil shipments. Vessels carrying ESPO and Sokol crude have reportedly been idling off China’s coast owing to logistical challenges and uncertainties. Amid concerns over potential supply disruptions from Russia and Iran, Chinese oil companies and major refineries have begun purchasing crude from alternative sources in the Middle East, Africa, and South America.

Trump may use the threat of further sanctions on Russia, or the offer of easing some of them, as part of a stick-and-carrot approach to get Moscow to enter negotiations to end the war in Ukraine. Republican Senator Marco Rubio, who is set to lead the US State Department under Trump, told a Senate confirmation hearing on January 15 that sanctions on Russian energy provided the US with “leverage” over Moscow.

“It’s very hard to reach an agreement or a deal that starts with a cease-fire and ends with a peace agreement if both sides don’t have certain leverage,” Rubio said, adding that lifting some sanctions could serve as a bargaining chip. “When you sit down at the table … you’re going to have to give and not just get, and sanctions and the release of sanctions can be a part of that.”