US sanction clarifications a tight squeeze for India's Feb oil supplies

Cargoes must be loaded before Jan 10 to evade sanction laws: Treasury Dept

Indian refiners have less time than they expected earlier to receive sanctioned tankers, prompting aggressive purchase of spot supplies of Middle East grades for February deliveries and some March shipments. A sudden demand for cargoes from mainly India and China has more than tripled premiums on alternative crude oils compared to trades prior to January 10, when the US imposed debilitating sanctions on Russian energy flows to cripple Moscow.

 

Refiners led by Reliance Industries and Indian Oil have until February 27 to wind up transactions with sanctioned Russian tankers, opaque traders, a shadow fleet, and important insurers, an official from the US Treasury Department’s Office of Foreign Assets Control (OFAC) confirmed a few days after Washington announced a fresh round of sanctions on Russian oil flows. The announcement initially left the market in some confusion over enforcement deadlines.

 

The cargoes must be loaded before January 10 to evade sanction laws, OFAC official said in an e-mail reply to Business Standard, pointing to a clause in General Licence 120 (GL 120). OFAC's General Licence 120 clarifies the winding down date as such: “Except as provided in paragraph (c) of this general license, all transactions prohibited by E.O. 14024 that are ordinarily incident and necessary to the delivery and offloading of cargo involving the blocked persons listed in the Annex to this general license are authorized through 12.01 am eastern standard time, February 27, 2025, provided that the cargo was loaded prior to January 10, 2025.”

 

On payments, OFAC referred to GL 120 in a separate mail, which said that transactions are authorised through 12.01 am eastern standard time, February 27, 2025, provided that any payment to a blocked person must be made into a blocked account in accordance with the Russian Harmful Foreign Activities Sanctions Regulations, 31 CFR part 587. That effectively means that Russian oil cargoes on sanctioned vessels must reach India by February 20 as banks take a week to process payments, effectively shrinking supplies for February, a refining official said. Payments are getting delayed because banks are demanding the entire paper trail of individual Russian trades, officials said.

 

Indian government officials said that Russian supplies are on track till February. But ship tracking data and a surge in tenders for spot cargoes issued by Indian Oil and other refiners to cover for February reflect a crude oil shortfall in the month and a need to find alternative supplies for March. Ideally, Indian refiners start talks with Russian traders for March supplies now, but sanctions have made it difficult to find suppliers, a refining official said. Reliance and Indian Oil did not comment on US sanctions.

 

Russian oil supplies are already dropping for February, with arrivals estimated at around 830,000 barrels per day (b/d), according to ship tracking data. Tanker arrivals up to January 17 averaged 1.55 million b/d, marginally higher from December, with predictions of as much as 1.9 million b/d for January, the highest since July, according to market intelligence agency Kpler. Bookings for January cargoes were made 45 to 60 days in advance. Typically, it's early to call February, but the January 10 sanction order has led to cancellation of several tankers, according to industry sources and refining data. More than 15 tankers, which were supposed to load cargoes after January 10 for February deliveries, were stranded after India rejected the cargoes.

 

A top government official told reporters that India will adhere to US sanctions. The shortfall in February will be made up by spot shipments from West Asia, a senior refining official said. Indian refiners also put forward some additional queries via the petroleum ministry for a call with OFAC, which happened on 16th, an industry source said. 

 

 One of them pertains to transactions involving opaque traders like Black Pearl Network and Arctor Shipping, Demex Trading, and Guron Trading. Another refers to clarifications on payment deadlines for transactions. One refining official said that they were under the understanding that payments can be made till March 12. But OFAC in an e-mail to Business Standard on Wednesday referred to GL 120 rules as applicable to “opaque traders” also.

“The little evidence so far suggests that OFAC sanctions are relatively effective as vessels previously placed on the list have become much less active, and in some cases idled entirely,’’ ship broker Fearnley said in a report. "With a significant portion of the fleet now being sanctioned, Russia and Iran may have to reduce exports and/or renew the shadow fleet, both of which will contribute to tightening the ‘normal’ tanker market,” it said.

 

Finding alternative vessels is expensive. Two refining officials spoke of freight rates for Aframax — a 700,000-barrel vessel used to ship Russian cargoes — increasing by $3-$4 per barrel, higher by half from previous levels.

 

There are hardly 117 tankers available now to transport Russian, Iranian, and Venezuelan oil, putting Indian refiners in a spot over supplies, according to three industry sources and a note from London-based Eklipx Research. OFAC sanctioned 183 crude oil tankers in the latest instalment of sanctions, and including those from previous rounds, it totals 284 vessels, accounting for 12 per cent of the entire global fleet transporting crude oil, according to data from OFAC and Fearnley.