Circle K: Recent US sanctions against Russia are highly impactful

TALLINN - Sanctions imposed by the United States at the end of October on Russia's largest oil companies, Rosneft and Lukoil, will take full effect in ten days, yet their significant impact on the Russian economy is already evident, according to Circle K.

The sanctions are expected to reduce the flow of Russian oil products to the global market and, as a result of blocking these companies, lead to an increase in the price of refined products.

According to Indrek Sassi, Head of Fuel Pricing at Circle K, the effects of the announced sanctions are already apparent. For instance, the operations of Teboil, Lukoil's subsidiary in Finland, have been blocked. Work at the West Qurna-2 oil field in Iraq, where Lukoil holds a major stake, has been suspended and force majeure declared after Iraq froze all payments to the company. Additionally, Bulgaria is taking state control of its largest refinery, owned by Lukoil; the sale of Lukoil's foreign assets to Gunvor Group, labeled a Kremlin puppet, has been blocked; and the fate of the Petrotel Lukoil refinery in Romania and the Zeeland refinery in the Netherlands is now in question.

"The US decision to sanction Rosneft and Lukoil is of landmark importance, as they are the two largest Russian oil giants, and these measures will significantly impact Russia's oil exports," Sassi explained. "The true impact of the sanctions will depend on how many foreign companies and oil purchasers avoid doing business with them, but the actions taken to date confirm that the effects will be far-reaching."

However, a more decisive cutoff of Russian oil from the global market could lead to price increases for crude oil and petroleum products. Turkish fuel supplier Guzel Enerjii has already warned its customers of an upcoming diesel price hike, citing supply disruptions and increased insurance and financing costs caused by the sanctions against Russia.

"The price of crude oil has fallen slightly since the beginning of the month, with Brent crude trading around 64 US dollars per barrel, but the prices of refined products are on the rise. This price increase is driven by growing demand, sanctions imposed on Russia by the US and the European Union, successful Ukrainian attacks on Russian oil industry and import facilities, and refinery maintenance periods in Southern Europe, all of which result in less finished product reaching the market," Sassi enumerated.

The sanctions against Russian oil have made Chinese and Indian refineries more cautious, causing them to start looking for new suppliers. For example, the Chinese refiner Yamchang Petroleum announced it was suspending purchases of Russian crude oil.

Meanwhile, the arrival of autumn has brought a slight decline in global consumption, which could slow price growth. Saudi Aramco has lowered the official price of its Arab Light crude grade for its Asian customers for December delivery, signaling that demand for oil in Asia is low.