Russia may develop oil sanctions workarounds as global supply rises, IEA says
Russia’s oil exports could be sustained if it finds workarounds to the latest U.S. sanctions package, the International Energy Agency (IEA) said on Thursday, as it forecast that growth in global oil supply would outpace demand this year.
Russian crude production rose by around 100,000 barrels per day (bpd) last month to 9.2 million bpd, the IEA said in a monthly report, even after its energy sector was struck with far-reaching sanctions on January 10.
“Time and again, oil markets have shown remarkable resilience and adaptability in the face of major challenges – and this time is unlikely to be different,” the IEA said. “Workarounds to sustain Russian export volumes may well appear in the coming weeks,” it added.
Last month, the Paris-based adviser to industrialised countries said Washington’s sanctions could significantly disrupt Russian oil supply chains, but nonetheless held off from altering its forecasts until the impact was clearer.
The U.S. sanctions announcement and the prospect of supply cuts helped oil prices make a strong start to 2025, with global benchmark Brent crude settling on January 15 above $82 a barrel, the highest since August 2024. However, oil’s gains were reversed by the end of the month on growing concerns over the global economy and the potential impact of emerging trade wars, the IEA said.
The IEA has been cautious about the impact on Russian supply since March 2022, soon after the war in Ukraine began and the first sanctions on Moscow were imposed. It initially predicted that 3 million bpd of Russian supplies might not find their way to market due to Western sanctions and buyer reluctance. However, Russian supply never fell by that much, prompting the agency to revise its predictions.
Three years into the war, Russia has withstood multiple waves of sanctions as India and China have increased purchases of its discounted oil. One response to January’s sanctions has been to seek out smaller vessels to supplement its so-called shadow fleet, Reuters reported.
In Thursday’s report, the IEA also made a minor upward revision to its oil demand forecasts, pegging 2025 global demand growth at 1.1 million bpd, up from a previous view of 1.05 million bpd, while continuing to see supply growing faster.
Global supply is on track to increase by 1.6 million bpd in 2025, led by the Americas, the IEA said, even without the Organization of the Petroleum Exporting Countries plus Russia and other allies (OPEC+) unwinding output cuts.
OPEC+ has implemented a series of cuts since 2022 to support the market and has repeatedly delayed reviving output due to weak demand and rising supply outside the group. Its current plan calls for the latest round of cuts to be gradually eased from April.
Global oil demand growth remains driven by China, the IEA said, and is now dependent on the country’s petrochemical sector as its demand for conventional transport fuels slows.
China’s use of gasoline, jet/kerosene, and gasoil declined marginally in 2024, with combined consumption of almost 8.1 million bpd only narrowly above 2019 levels. “This strongly suggests that fuel use in the country has already reached a plateau and may even have passed its peak,” the IEA said.
Credit: Reuters
