Russia has suffered a major economic setback, after China and India halted their purchases of Kremlin oil.
Oil and gas revenues are vital sources of revenue, accounting for between a third and half of Russia’s federal budget over the last decade.
In particular, these revenues play a key role in helping Putin to finance his war in Ukraine.
The war costs Putin over £262 million a day, according to a report published last year.
That figure seems only likely to increase, with Putin having allocated £117 billion for defence spending in 2025 – an increase of 25% last year.
The Kremlin can ill afford to lose vital energy revenues as it pursues its military goals in Ukraine.
However, the two main buyers of Russian oil have temporarily halted their purchases as new US sanctions passed earlier this month begin to bite.
The sanctions have caused shipping costs to soar, creating a significant price gap between buyers and sellers
As a result, trade for March-loading Russian oil in China and India has stalled, complicating Moscow’s crude exports.
Offers for March ESPO Blend crude from Russia’s Pacific port of Kozmino have jumped to premiums of US$3–$5 per barrel over ICE Brent on a delivered ex-ship (DES) basis to China, following a sharp surge in Aframax tanker freight rates by millions of dollars.
Before the new sanctions, demand for Russian ESPO Blend crude was robust, with spot premiums rising to nearly $2 per barrel due to firming prices for competing Iranian grades and winter demand.
India is also seeing a decline in Russian oil offers, as Bharat Petroleum Corp Ltd said no new ones for March deliveries had been received.
Compounding Putin’s problems, Indian banks have blocked payments for Russian oil imports due to the new sanctions.
The latest sanctions target tankers that carry about 42% of Russia’s seaborne oil exports.
Both India and China became the biggest buyers of Russian oil after the West imposed sanctions in the wake of Putin’s full-scale invasion of Ukraine.
India spent over £25 billion on Russian crude oil between 2022 and 2023, while China forked out £49 billion.
