Putin's Oil Trade Gambit Flops Amid Sanctions

The U.S. Department of the Treasury's Office of Foreign Assets Control (OFAC) has intensified its efforts to enforce a price cap on Russian oil, affecting international shipments, including those destined for India.

According to a Treasury Department press release on Wednesday, OFAC targeted shipowners and vessels implicated in transporting Russian crude oil above the cap, with recent designations reflecting a firm commitment to reducing Russian revenues and supporting stable energy markets.

Almost 5 million barrels of Russia's Sokol grade crude, bound for Indian refiners, have not reached their destinations, with one shipment stalled for more than a month. The shipments are part of Russia's increased oil trade with India, the world's third-largest oil importer and consumer, which has turned to discounted Russian oil following Western sanctions against Russia.

Newsweek reported that billions in profits from these Russian oil sales are stuck in Indian banks and cannot be transferred or converted because of Reserve Bank of India restrictions, marking a setback for Russian President Vladimir Putin's strategy to bypass the U.S. dollar in international trade, particularly after Western sanctions isolated Russia's financial system.

The Treasury Department said in the release that OFAC's actions are a direct response to the evasion of the price cap policy established by the Price Cap Coalition, including the G7, European Union and Australia. The policy is intended to maintain global oil supply while cutting down Russian oil revenue, a significant source of funding for its military actions.

The enforcement includes sanctions on ships like the NS Century, which halted south of Sri Lanka, and other vessels owned by Sovcomflot PJSC, a Russian state tanker company under restrictions.

Newsweek has reached out to the U.S. Department of the Treasury via email for comment.

The sanctioned ships, including the NS Century, NS Commander and Sakhalin Island, all heading to Vadinar, India, with Sokol crude, have been idling near their destinations, according to Bloomberg's tanker tracking data. The situation reflects the broader challenges faced in the maritime transport of Russian oil, especially for companies like Sovcomflot, which faces financial restrictions by the U.K., European Union and Washington, the Treasury Department said.

The impacts of the sanctions are significant, considering Sovcomflot's ownership of five of the affected tankers, each carrying about 700,000 barrels of Sokol crude. Enforcement of the sanctions aligns with OFAC's April alert on possible evasion of the Russian oil price cap and the Coalition Advisory for the Maritime Oil Industry and Related Sectors, the Justice Department said.

While the exact reasons for the holdup of the tankers are not clear, the alignment of the U.S. Treasury's sanctions with the reported delays in oil shipments to India suggests a causal relationship, Bloomberg said.