Freight Rates for Russian Oil Soar Amid New US Sanctions

The latest round of US sanctions targeting 183 vessels involved in Moscow's energy exports has led to a significant rise in freight rates for shipments of Russian oil from its western ports to India. 

This surge comes hot on the heels of the US sanctions on Russian tankers. According to three trading sources and calculations by Reuters, freight rates for these shipments have risen by 25 percent. 

India, Russia's largest market for oil, continues to buy Russian barrels alongside China, using the wind-down period provided by Washington until March to assess and mitigate new risks.

Across the first weeks of January 2025, the cost of a one-way voyage for an Aframax vessel from Russia's Baltic ports to India has escalated to between $6.0 million and $6.3 million, compared to the previous range of $4.7 million to $4.9 million. 

Although this marks a substantial increase, it is still significantly lower than the peak of $20 million per voyage seen in 2022, following the initial wave of Western sanctions on Russia's oil sector. This included a price cap and a European Union oil embargo.

Similarly, the cost of transporting oil from the Black Sea port of Novorossiisk to India for Suezmax tankers, has risen to around $5.5 million for a one-way trip, up from the previous cost range of $4.3 million to $4.5 million.

The bulk of Russian oil shipments are now being handled by Russian ships or the so-called “shadow fleet” of older vessels operating under non-Western flags and using non-Western insurance providers. These measures are an attempt to circumvent the restrictions imposed by Western nations.

In addition to the increased freight rates, daily demurrage costs have also surged. Traders report that these costs have climbed to between $80,000 and $90,000 per day, up from the range of $55,000 to $60,000.

Under the price cap imposed in 2022, suppliers of Russian oil can only use Western services, such as shipping and insurance, if Russian crude trades below $60 per barrel. 

Many Russian exporters have turned to domestic insurers like Ingosstrakh and Alphastrakhovanie, both of which have now been sanctioned by the US as part of the latest measures.

The recent sanctions on these insurers and the 183 tankers are expected to compel Russian oil firms to reduce prices to below the $60 per barrel threshold, enabling them to access Western shipping and insurance services once again.

As Russia’s energy sector faces mounting international pressure, it remains to be seen how far the ramifications of these sanctions will affect the global oil market.

Sanctions support with Shearwater Law

Geopolitical events have placed sanctions at the forefront of the shipping industry, requiring vessel owners, charterers, traders, and business owners to navigate a complex regulatory web set by global bodies. 

Shearwater Law is familiar with all aspects of sanctions laid out by major sanctions bodies. If you are dealing with sanctions, or you require assistance with a sanctions dispute or investigation, Shearwater Law can help.

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