How the story of the stuck tankers with Sakhalin oil reflects the general contradictory situation under sanctions

The story of tankers with Sakhalin Sokol oil stuck at sea is apparently coming to a logical conclusion. On February 19, three tankers headed to China and India, according to Kpler data.

Let us remind you that about a dozen tankers with 10 million barrels of oil from the Sakhalin-1 project have been idle off the coast of South Korea, Malaysia and Singapore since the end of November, since the largest buyer of this oil, the Indian state company India Oil, refused to take the cargo. As Kommersant wrote on January 10 and 31, this decision was most likely due not to the latest US sanctions, which have hampered the supply of Russian oil, but to commercial disagreements over the price of oil and the currency of payment. Rosneft, the operator of Sakhalin-1, refused to make concessions and chose to store oil on the water, while simultaneously searching for new buyers. The Indian side, in turn, apparently expected that the decline in oil prices in December, when Brent dropped to $72 per barrel, its lowest level since June 2023, would strengthen its negotiating position.

However, oil prices went against the buyer, and by mid-February Brent oil rose in price by $11 per barrel compared to December. Against this background, refineries in China, as well as other Indian refiners in addition to India Oil, began to actively take new batches of Sakhalin oil. At the same time, according to Reuters, shipments of Sakhalin oil for China in February were offered at a discount to Brent of about $1 per barrel on DES terms, while previously Sokol in Asia was sold at a premium to Brent. The combination of rising oil prices and the provision of a discount made it possible not only to sell current shipments, but also to begin selling stuck December cargo from mid-February.

This story in miniature reflects the general contradictory situation with the sale of Russian oil under sanctions. On the one hand, since more than 85% of Russian seaborne oil exports now go to just three countries—India, China and Turkey—individual buyers gain significant market power, which they try to use when the opportunity arises to increase their benefits. On the other hand, even within this “Russian oil market” there is competition between buyers, which allows Russian suppliers to maneuver and not agree to completely unattractive conditions. Such maneuvering has its price, which is higher, the smaller the number of potential buyers. It is possible to exist in such conditions, but it is difficult to develop: after all, large projects require sales guarantees, which in the current conditions Russian oil companies can only provide by obtaining their own oil refining assets in friendly countries.