A common view in the crude oil market is that Western sanctions against Russia's exports are fairly pointless as the market quickly devises ways to keep cargoes flowing.
This means that any new measures imposed only result in a fleeting boost to prices, which fades in the face of the reality of virtually uninterrupted flows.
The same dynamic may be at play with U.S. President Donald Trump's latest sanctions, announced last week, which targeted Russia's two largest oil companies, Lukoil (LKOH.MM) and Rosneft.
These two majors produce roughly 5% of the total global crude oil, about 5.3 million barrels per day (bpd), of which they export about 3.5 million bpd.
Global benchmark Brent futures jumped as much as 8.9% after the new measures were announced, reaching a three-week high of $66.78 a barrel during trade on October 24. It was little changed at $66.37 in early Asian trade on Monday.
While that seems like a fairly big spike in prices, it's well below what would have occurred if the crude market actually believed there was a serious risk that as much as 3.5 million bpd would be lost to the seaborne market.
When Russia invaded Ukraine in February 2022, oil got to just under $140 a barrel on the threat of the loss of Russian exports.
The expectation is that Russia's oil exporters will be able to circumvent any new sanctions by utilising the dark fleet of tankers and a myriad of middlemen and banking arrangements that avoid U.S. dollars.
Past experience suggests this is indeed the most likely outcome, and that any disruption to Russia's crude exports will be short-lived and limited in scale.
Does this mean that the sanctions are a wasted effort?
It all depends on what you really want to achieve.
If the aim is to prevent Russian oil from being exported by cutting off its remaining buyers in China and India, then these latest measures are likely to prove ineffectual.
If the aim is to keep Russian barrels in the global market, but cut the revenue Moscow receives for selling its oil, then the sanctions may be somewhat more effective.
The new sanctions make it riskier for refiners in China and India, who are the only major buyers for Russian oil, to do business with Moscow.
They are likely to demand steeper discounts in order to keep importing Russian barrels.
Additionally, using the dark fleet and middlemen trading companies also adds to the cost of shipping Russian crude.
Shutting Russian oil companies out of the global U.S. dollar banking system also imposes costs on oil revenue, as routing money through complex shell companies and numerous offshore jurisdictions means every intermediary takes a cut.
DO SANCTIONS WORK?
Clearly Western sanctions against Russia aren't having much apparent impact on persuading President Vladimir Putin to end his war in Ukraine, and they are also unlikely to result in a significant reduction in export volumes.
But they make it harder for Russia to sell crude, and the money received per barrel may decline.
It also means that flows of Russian barrels are once again likely to be reshuffled as some buyers back away from the trade.
India's Reliance Industries (RELI.NS) may be a case in point.
The company operates a 1.24 million bpd refinery complex on India's west coast at Jamnagar, producing fuel for both the domestic and export markets.
Reliance has said it will abide by Western sanctions, which means it may end its 500,000 bpd contract with Rosneft.
Reliance also likely buys some Russian crude on spot terms and total imports of Russian oil through Sikka port, which supplies the Jamnagar complex, are forecast at 591,000 bpd in October, according to data compiled by commodity analysts Kpler.
This is down from the average of 766,000 bpd in the second quarter, but in line with the 563,000 bpd in the first quarter.
If Reliance does halt its imports from Russia, it implies around 500,000 bpd of crude will be available to other buyers.
The question is whether India's state-controlled refiners will be willing to take the risk, or if Chinese refiners will be able to take more Russian crude.
Much will depend on whether Trump is successful in reaching trade deals with India and China, and whether Russian oil forms part of these deals.
It's likely that both New Delhi and Beijing will want significant concessions from Washington if they are to end or significantly reduce their imports of Russian oil.
For now, Russian oil is likely to continue to flow, but the main risk for the market is that it becomes more of a political tool in the broader reshaping of global trade under Trump.
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The views expressed here are those of the author, a columnist for Reuters.
