With increased pressure from US President Donald Trump and European countries restricting Russian exports and filling storage bins, Russian oil producers could be forced to make deep production cuts in the coming months, a development that will further strain the Kremlin’s war chest.
Russia’s crude oil exports have remained largely stable in recent years despite widespread Western sanctions and deep cuts in European energy purchases. The Russian government has successfully diverted much of its offshore oil to China, India and Turkey, often relying on a “shadow fleet” of aging and uninsured tankers to circumvent restrictions while offering deep 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 crude oil.
Decrease in Seaborn exports
The European Union’s ban on imports of fuel refined from Russian crude oil, which took effect last month, has also hurt demand. 29dk2902l
Russia’s seaborne crude oil exports fell from 3.8 million barrels per day (bpd) in January to 3.4 million barrels per day (bpd) in January, and are now at about 2.8 million barrels per day (bpd) in February, according to analysis firm Kpler.
At the same time, the amount of Russian crude stored on ships has increased to a record high of more than 150 million barrels in recent months, and many tankers have also slowed, both signs that buying is slowing.
The European Commission’s proposal to impose a blanket ban on all operations that support Russia’s seaborne oil exports goes far beyond previous sanctions and would put further pressure on the Kremlin.
India drastically reduces imports
Pressure on Russian exports is likely to intensify in the coming months as India, the biggest buyer of Russian crude shipped by sea last year, prepares to curb purchases as part of a trade deal with the United States. President Trump said New Delhi agreed to halt imports from Russia under the deal, but Indian officials have not confirmed the plan.
According to Kupler, India bought about 1.7 million barrels of Russian crude oil a day last year, about half of Moscow’s total seaborne exports. Imports are expected to fall to about 1.1 million barrels per day in January, recover slightly in February, but decline significantly from March onwards.
According to Reuters, three major refiners – Indian Oil, Bharat Petroleum and Reliance Industries – have suspended purchases of Russian crude oil.
However, it is unlikely that India’s purchases will go to zero. Nayara Energy’s 400,000 barrel-per-day refinery, which is partly owned by Russian oil giant Rosneft, will remain dependent on Russian supplies but will be closed for maintenance for a month starting in April.
India’s small refiners are also likely to continue buying Russian crude, especially if the discounts deepen further.
Independent refineries in China could also absorb some of the spill, but to a limited extent. Russia already accounted for about a fifth of China’s total oil imports of 11.5 million barrels per day last year, and Beijing has historically avoided over-reliance on a single supplier.
supply chain reaction
This slowdown in purchases is causing a negative knock-on effect across Russia’s oil logistics. Prolonged voyages of the “shadow fleet” are tying up tankers and reducing the availability of vessels to store additional crude oil at sea, thereby forcing producers to divert more oil to domestic storage.
The size of Russia’s onshore storage capacity is unknown, as the Russian government does not release data, but it appears that there is only a limited amount left. Based on satellite monitoring of the tanks, onshore oil inventories amount to about 16 million barrels, or about 51% of production capacity, said Naveen Das, senior crude oil analyst at Kpler.
Russia could use parts of its vast pipeline network for storage if necessary. Kpler estimates that total onshore production capacity could increase to about 100 million barrels, as storage levels in pipeline storage and fixed top tanks cannot be monitored by satellite.
But even that buffer can prove insufficient. Russia produces about 9.3 million barrels of crude oil per day, about half of which is exported. At this rate, onshore storage could quickly fill up if exports remain subdued, leaving producers with little choice but to cut production.
budget is tight
As a result of these logistical bottlenecks, Russian oil production could fall by up to 300,000 barrels per day from March to May, said Jorge León, head of geopolitical analysis at Rystad Energy.
Oil and gas revenues are the Kremlin’s main source of income, accounting for almost a quarter of federal budget revenues. Since Russia began its full-scale invasion of Ukraine in 2022, Russia’s finances have already been strained due to massive defense spending.
Hit by falling oil prices, the country’s oil and gas revenues halved in January from a year earlier, falling to their lowest level since July 2020, according to Finance Ministry data.
The combination of reduced production and deep discounts on exports will further erode Moscow’s oil revenues and exacerbate fiscal pressure on the Russian state. That’s exactly what the West is aiming for as Ukraine’s deadly conflict enters its fourth year.
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(Reporting by Ron Bousso; Editing by David Holmes)
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