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Russian oil producers could be forced to sharply cut output in coming months as tightening pressure from U.S. President Donald Trump and European powers restricts the country’s exports and its storage fills up, a development that would further dent the Kremlin’s war chest.
Russian crude exports have remained broadly stable in recent years despite sweeping Western sanctions and a sharp reduction in energy purchases by Europe. Moscow successfully redirected most of its seaborne crude to China, India and Turkey, often relying on a “shadow fleet” of ageing, uninsured tankers to circumvent restrictions while offering steep discounts.
That resilience is now under strain. Exports have slowed in recent months after President Trump tightened sanctions and imposed tariffs on India over its purchases of Russian oil.
DROP IN SEABORNE EXPORTS
Demand has also been hit by a European Union ban on imports of fuels refined from Russian crude that came into force last month.29dk2902l
Russian seaborne crude exports fell to 3.4 million barrels per day (bpd) in January from 3.8 million bpd in December, and are currently tracking around 2.8 million bpd in February, according to analytics firm Kpler.
At the same time, the volume of Russian oil held on ships has climbed to a record high above 150 million barrels in recent months, while many tankers have also slowed their speeds – both signs of weaker buying.
The European Commission’s proposal to impose a sweeping prohibition on any business that supports Russia’s seaborne crude oil exports – which goes far beyond previous sanctions – would squeeze Moscow yet further.
INDIA SLASHES IMPORTS
Pressure on Russian exports is likely to intensify in the coming months as India, the largest buyer of seaborne Russian oil last year, prepares to curb purchases as part of a trade deal with the United States. President Trump has said New Delhi agreed to halt Russian imports under the deal, though Indian officials have not confirmed that plan.
India bought around 1.7 million bpd of Russian crude last year, roughly half of Moscow’s total seaborne exports, according to Kpler. Imports fell to about 1.1 million bpd in January and, while they are expected to rebound slightly in February, they are also projected to decline sharply from March onward.
Three major refiners – Indian Oil, Bharat Petroleum and Reliance Industries – have halted purchases of Russian crude, Reuters has reported.
Indian buying is unlikely to drop to zero, however. Nayara Energy’s 400,000 bpd refinery, partly owned by Russian oil major Rosneft, will continue to rely on Russian supplies, though it is scheduled to shut for maintenance for one month starting in April.
Smaller Indian refiners are also likely to keep buying Russian crude, particularly if discounts deepen.
Independent Chinese refineries may also absorb some of the displaced volumes, but their scope is limited. Russia already accounted for about one-fifth of China’s total crude imports of 11.5 million bpd last year, and Beijing has historically avoided overreliance on any single supplier.
SUPPLY CHAIN REACTION
This slowdown in purchases is triggering a negative chain reaction across Russia’s oil logistics. Longer “shadow fleet” voyages are tying up tankers, reducing the availability of vessels to store additional crude at sea, which, in turn, is forcing producers to divert more oil into domestic storage.
The size of Russia’s onshore storage capacity is unclear, as the government does not publish data, but the amount remaining appears limited. Onshore oil inventories stand at around 16 million barrels, or about 51% of capacity, based on satellite monitoring of tanks, according to Kpler senior crude analyst Naveen Das.
Russia could use parts of its vast pipeline network for storage if needed. Kpler estimates that pipeline storage and fixed-top tanks, whose storage levels cannot be monitored by satellite, could raise total onshore capacity to around 100 million barrels.
But even that buffer may prove insufficient. Russia produces about 9.3 million bpd of crude, roughly half of which is exported. At that rate, onshore storage could fill quickly if exports remain constrained, leaving producers with few options other than cutting output.
BUDGETS ARE UNDER STRAIN
Russia’s oil production could fall by up to 300,000 bpd between March and May as a result of these logistical bottlenecks, according to Jorge Leon, head of geopolitical analysis at Rystad Energy.
Oil and gas revenues are the Kremlin’s main source of income, accounting for nearly a quarter of federal budget receipts. Moscow’s finances have already been strained by heavy defence spending since Russia launched the full-scale invasion of Ukraine in 2022.
The country’s state oil and gas revenues halved in January from a year earlier, falling to their lowest level since July 2020, as declining crude prices took their toll, according to finance ministry data.
A drop in production combined with deeper discounts on exports would further erode Moscow’s oil income, compounding the financial pressure on the Russian state – which is precisely what the West is seeking to do as the deadly conflict in Ukraine enters its fourth year.
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(Reporting by Ron Bousso; Editing by David Holmes)
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