Late in December 2023, the United States Treasury warned that it would apply sanctions on foreign banks for evading the Russian price cap and called on them to boost compliance.

Playing it safe, banks in China, Turkey and the United Arab Emirates (UAE) that work with Russia increased checks. They have now begun asking for extra documentation and have trained more staff to make sure deals were compliant with the price caps, Reuters reported, quoting eight sources familiar with the matter. Russian oil firms are consequently facing delays of up to several months or even rejection of money transfers into their accounts in Moscow.

Cautious of US secondary sanctions, these banks are now asking clients to provide written guarantees that no person or entity from the US Special Designated Nationals (SDN) list is a payment beneficiary or involved in a deal.

Recent Ukrainian drone attacks on Russian oil hubs and refineries have also increased pressure on the Russian oil industry. Rosstat, Russia’s Federal State Statistics Service, said that in the week ending on March 24, the nation’s production of motor petrol fell by approximately 7.4 per cent to 754,600 tonnes compared to the week prior, when production was at 815,300 tonnes, as reported by Newsweek.

Pakistan is holding off on benefitting from Russian oil price caps, unlike other Asian countries, due to supposed pressure from the US

To manage any surge in domestic fuel prices, Russia banned gasoline exports for six months on March 1, meaning lost revenues for the Kremlin. Moreover, the tightening sanctions on Russia’s oil exports are raising freight costs for moving Russian crude, Tsvetana Paraskova reported on Oilprice.com.

Recent estimates by Argus Media say that since the US warned of using secondary sanctions against vessels striving to bypass American sanctions regime in December, shipping Russian crude from a port in the Baltic Sea to China costs around $14.5 per barrel. Reports say that more than half of this per-barrel cost is attributable to the sanctions.

With the increase in pressure, Russian exports to India are also under the cloud. India’s imports of Russian crude oil fell to a one-year low in January — down 35pc from last year’s peak — as New Delhi appeared to diversify its crude sources.

After the announcement by the US Treasury and State to blacklist Russian state tank operator Sovcomflot, all Indian refiners are reportedly refusing to take Russian crude transported on vessels of Sovcomflot and avoid running afoul of the stricter enforcement of the US sanctions on Russia, Oilprice.com added. Russian crude exports on Sovcomflot’s fleet to India have dropped by 0.3m barrels per day (bpd) from the 2023 average, the report added.

Indian refiners are now carefully checking the ownership chain of every tanker carrying Russian crude to ensure the vessels are not affiliated with Sovcomflot, or other entities on the US sanctions list, unnamed sources with knowledge of the matter told Bloomberg mid-March.

Most cargoes, previously bound for India, are now either discharging or heading to private refiners in China, the world’s top crude importer.

Yet, the overall scenario is not bleak for Moscow. It has leverage, too. Despite all the above, Asian imports of Russian crude oil hit a 10-month high in March, Reuters said, quoting a London Stock Exchange Group (LSEG) Oil Research report.

Higher arrivals of Russian crude in March to the top-importing markets in Asia are set to boost Asian crude imports to 27.5m barrels per day (bpd) — the highest level in 10 months. The estimated import volumes in March are higher than Asia’s 26.7m bpd imports in February and the 27.2m bpd arrivals in January this year, the LSEG report said.

China remains the top buyer, with its crude imports from Russia approaching 11.8m bpd in March, up from 11.2m bpd in February and 10.4m bpd in January, the data added.

The sanctions could spike oil market prices. While Moscow would benefit from higher market prices, the Biden Administration may not find them palatable — especially in an election year.

While Washington wants the sanction regime to work, it is also striving to dissuade Kyiv from targeting Russian oil installations behind the scenes, as it may result in a price spike. Russia knows this well and has begun flexing its oil market muscle accordingly.

Russia has asked its oil companies to reduce output and ensure compliance with its reduced Organisation of Oil Producing Countries (Opec) output quota.

Moscow’s decision to cut oil production is likely to push the price of oil to $100 a barrel later this year, warned J.P. Morgan Global Commodities Research in a recent note, unless countermeasures are taken by the US or other suppliers — not an easy task. Given the shaky market balance, it seems the US is keeping the dark, ‘shadow fleet’ of Russian tankers taking its crude to customers on a rather loose leash.

This presents Pakistan with an interesting opportunity. Regretfully, under pressure from important quarters, Islamabad does not seem to be paying much attention to emerging opportunities. When the then prime minister Imran Khan visited Moscow in 2022, just when the Russian ‘war on Ukraine’ began, there were discussions about Pakistan importing crude from Russia at a discounted price.

Immediately after, the PTI government was toppled, and it seemed that the opportunity to import crude at a discounted price from Russia was gone. However, after a lull, the new Pakistan Democratic Movement (PDM) government under Shahbaz Sharif also moved ahead with the project.

Former minister of state for petroleum, Dr Musadik Malik, was vocal about the possibility at the time.

A few containers of Russian crude were even imported, with some saying it was the advent of a new era.

Since then, the project seems to have fizzled out. Why? Not much is known. Some feel the power brokers in Rawalpindi do not want to annoy Washington, hence the lull. Similarly, there has been no progress on the Iran-Pakistan gas pipeline — again due to US pressure, some assert. Both these projects could have helped Pakistan overcome its energy scarcity problem at an affordable cost.

The US pressure, though, is not understandable. On one end, Washington wants Islamabad — Rawalpindi, to be exact — not to improve its relations with countries like Russia or Iran to at least ease its energy conundrum. On the other, it is allowing India to continue nurturing ‘crude’ relations with Russia.

The contrast is visible. US Treasury Assistant Secretary for Economic Policy Eric Van Nostrand said early this month that the United States neither expects India to reduce its oil imports from Russia nor has requested New Delhi to do so.

The Indian Express reported that Mr Nostrand said at an event organised by the Ananta Centre in New Delhi, “The price cap’s goals are to limit Putin’s revenue and maintain global oil supply, essentially by creating a mechanism for India and other global consumers of oil, to access Russian oil at discounted prices.” He added that emerging markets like India benefited from the price cap as Russia was forced to deepen discounts on its oil.

Tightening screws on Moscow provided Pakistan with an opportunity. Why shouldn’t we avail it? That is a big if, and someone in the corridors of power needs to have a straight, heart-to-heart talk on the issue — if one can.

Published in Dawn, The Business and Finance Weekly, April 15th, 2024