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US sanction clarifications tighten squeeze on India's February oil supplies

Indian refiners have until Feb 27 to wind down transactions with sanctioned Russian tankers, opaque traders, a shadow fleet, and insurers, according to a US govt official

Crude oil

The cargoes must be loaded before January 10 to evade sanction laws, said an OFAC official. | Representational

S Dinakar New Delhi

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Indian refiners have less time than they expected earlier to receive sanctioned tankers, prompting inquiries for purchase of spot supplies from West Asian producers for February deliveries.
 
Refiners led by Reliance Industries and Indian Oil have until Feb 27 to wind down 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 that left the market in some confusion over enforcement deadlines. The cargoes must be loaded before January 10 to evade sanction laws, the OFAC official said in an email reply to Business Standard, pointing to a clause in General Licence 120.
 
 
OFAC's General Licence 120 clarifies the winding-down date: "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 a.m. 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 were 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, a refining official said, effectively shrinking supplies for February. 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 February. Reliance and Indian Oil did not comment on US sanctions.
 
Russian oil supplies for February are already dropping, with arrivals estimated at below 800,000 barrels per day (bpd), according to ship-tracking data. Tanker arrivals in the first half of January averaged 1.5 million bpd, marginally higher from December, with predictions of as much as 1.9 million bpd for January, the highest since July, according to market intelligence agency Kpler. Bookings for January cargoes are 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, industry sources said and refining data showed. 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 would adhere to US sanctions. The shortfall in February would be made up by spot shipments from West Asia because for supplies from Africa or the US bookings must be made by January 10, a senior refining official said.
 
Indian refiners have also put forward some additional queries via the petroleum ministry for a call with OFAC, a top refining source said. One of them pertains to transactions involving opaque traders like Black Pearl network and Arctor Shipping, Demex Trading, Guron Trading. The other refers to clarifications on payment deadlines for transactions. One refining official said that they were under the understanding that payments could be made till March 12 and that they would seek a clarification on this. But OFAC in an email to Business Standard on Wednesday referred to GL 120 rules as applicable to “opaque traders” too.
 
"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 the 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.”
 
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.
 

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First Published: Jan 16 2025 | 2:23 PM IST

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