Non-G7 tankers carry 10% less Russian crude in July amid sanctions

Russia's crude shipments by tankers operating outside of the G7's price cap fell by over 10% in July, with renewed pressure from Western sanctions and the country cutting supplies to overseas buyers.

Data from S&P Global Commodities at Sea and Maritime Intelligence Risk Suite suggested 2.64 million b/d were lifted last month by tankers not flagged, owned or operated by companies based in the G7, the EU, Australia, Switzerland and Norway, and not insured by Western protection and indemnity clubs, compared with 2.94 million b/d in June.

The fall came as the OPEC+ member's overall seaborne exports averaged 3.19 million b/d in July, down by around 500,000 b/d on the month and the lowest monthly reading this year.

Western authorities have blacklisted more than two dozens of tankers for non-compliance of the price cap in recent weeks, with emerging evidence that direct imposition of sanctions on ships could affect their operations.

The EU sanctioned 17 tankers that had shipped 22.4 million barrels of Russian oil year-to-date on June 24, and since then only one of them has transported 264,000 barrels of Russian fuel oil and vacuum gasoil to Turkey, according to CAS data.

On July 18, the British government put 11 Suezmax, Aframax, Long Range 2 and Medium Range ships on the sanctions list while announcing its agreement with over 40 European countries and the EU to tackle "illegitimate" tankers transporting Russian oil to fund Russia's war chest against Ukraine.

In theory, sanctioning ships could have stronger effects in stopping their operations than sanctioning shipowners, who can transfer ownership of tankers to non-sanctioned firms.

But analysts said lower Russian crude exports could also be attributed to improved compliance with OPEC+ output cuts and a recovery in domestic refining, and that sanctioned ships could return to trading in the near future.

While those vessels could lose their insurance coverage for some time after being sanctioned, such issues could be resolved as long as top buyers like India and China are willing to continue receiving Russian barrels, said Nikesh Shukla, a tanker analyst with S&P Global Commodity Insights.

"For sovereign power, [setting up insurance facilities] won't be difficult," Shukla said. "Some ships are temporarily out of operation, but that doesn't imply they are out of business."

Record share

While their transport volume fell on the month, non-G7 tankers' share in Russian crude exports rose marginally from 82.7% in July from 82.5% in June -- rising for five months in a row and hitting another high since December 2022, when the price cap came into force.

Overall, tankers operated by Russian firms loaded 10.6 million barrels in July, down from nearly 17 million barrels in June, as many ships of state carrier Sovcomflot were sanctioned.

Hong Kong operators lifted 14.7 million barrels last month, up from 9.56 million barrels in June and outnumbering tanker operators of any other nationality for the first time. Sitting at No. 2, mainland Chinese operators saw their shipments fall to 13.9 million barrels from 18.9 million barrels.

Together, tankers operated by Hong Kong and mainland Chinese companies were responsible for transporting nearly 29% of Russian crude exports, and 91% of the shipments were not serviced by G7-linked maritime companies.

The development came as Russian exports of the Eastern Siberia-Pacific Ocean blend, a Far East crude grade generally trading above the price cap of $60/b, bucked the trend and increased to 27.8 million barrels in July from 25.6 million barrels in June. Hong Kong and mainland Chinese tanker operations were responsible for nearly two-thirds of the ESPO shipments, mainly to mainland Chinese refineries.

China's overall crude throughput is set to recover in July and August after reaching a six-month low in June, as scheduled refinery maintenance winds down, sources and analysts told Commodity Insights late last month.

Meanwhile, India-bound Russian crude shipments fell to a five-month low of 47.8 million barrels last month, of which 81% were on tankers operating outside of the cap -- a share identical to June's level.

Weaker Indian demand came as four Indian refineries with a combined crude-processing capacity of 546,000 b/d commenced their planned maintenance in July, according to Commodity Insights' Global Refining Outlook.