It is impossible for China and India, which together buy about 80% of Russian oil, to refuse supplies from Russia in the short term because the market is unable to replace these volumes. The unlikely scenario of Russia refusing oil would cause a sharp jump in oil prices above $100 per barrel, which is contrary to the interests of all market participants, including the United States, experts believe.
At the same time, analysts allow only a temporary increase in the discount for Russian oil and additional logistics costs if secondary US sanctions are introduced.
US President Donald Trump previously threatened that the US would impose import duties of approximately 100% against Russia and its trading partners if an agreement on a settlement of Ukraine was not reached within 50 days. Subsequently, Trump reduced this period to 10 days, which expire on August 8. In particular, the US Permanent Representative to NATO Matthew Whitaker stated that the US intends to impose sanctions on China, India and Brazil for purchases of Russian oil in order to achieve an end to hostilities in Ukraine. On Tuesday, Trump vowed to raise tariffs on India on August 6 over its purchases of Russian oil.
The Indian foreign ministry said the country had come under attack from the West over its oil imports from Russia, even though the US had previously supported such purchases to stabilize global energy markets. The Indian foreign ministry also noted that countries criticizing India for buying energy from Russia were themselves trading with Russia. China's foreign ministry, on the other hand, said China would be guided by its own interests in formulating a national energy strategy.
China and India together buy more than 80% of Russian oil. Experts say that if the two countries continue to ignore US demands to stop importing oil from Russia, the impact of secondary sanctions will be limited. At the same time, Kasatkin noted that secondary sanctions could put pressure on logistics and payments, which could increase delivery costs. “In practice, this may mean that Urals will again trade at a price of 50-55 USD per barrel even with a high Brent price (85-90 USD) during the adaptation period. After two or three months, the logistics and trade infrastructure will be restored and the discount will return to its current size“, experts admit.
The impact of the new US sanctions may be expressed in a short-term increase in the discount for oil from the Russian Federation. At the same time, according to him, to some extent the effect of Trump's statements is already reflected in current oil prices. “There was no significant increase in prices. This suggests that market participants are not confident in the shift of the balance towards a decrease in supplies. In addition, after the official statements of the Indian government regarding purchases of Russian energy resources, we observed a small drop in prices“, the expert added.
“As has repeatedly happened since the spring of 2022, we believe that new potential sanctions from the US will not affect the volumes of exports and oil production of the Russian Federation, and the negative impact will be expressed in a temporary expansion of discounts for Russian oil, experts add.
Trump said that the US will increase oil production if, in the event of the introduction of tariffs against Russia and its trading partners, disruptions begin on the global market. Experts, however, expressed doubts about the possibility of replacing supplies from Russia.
According to experts, strict implementation of secondary sanctions, without taking into account the market balance, could lead to a deficit in the oil market. “Against the backdrop of stable global demand (especially in Asia) and the lack of flexible sources to increase supplies, such a scenario could cause a price jump above $100 per barrel. This would run counter to the interests of the largest importers, including the United States itself. Therefore, the likelihood of full-scale implementation of secondary sanctions with strict implementation is very limited“, analysts comment.
India receives sufficient quantities of oil from Russia at lower prices. According to the analytical company Kpler, if India refuses oil from Russia, it will have to increase its costs for importing this raw material by $ 10 billion. “It should be noted that if India refuses Russian oil, this should lead to an increase in prices on world markets, which could increase these costs. We believe that it is unlikely to quickly replace oil supplies from Russia”, analysts add.
Saudi Arabia has the opportunity to replace a significant part of the volumes of oil from Russia. However, the expert does not believe that the kingdom will take such a step, given its long-standing cooperation with Russia within OPEC+. “Saudi Arabia is more likely to take advantage of the moment in this case and increase revenues by raising oil prices“, experts conclude. “Strict sanctions against the Russian Federation, if effective, could lead to a deficit on the world market"