Russian Traders Scramble for Sanction-Proof Tanker Vessels

Russia may be forced to reduce its oil production in the coming months as U.S. sanctions restrict access to tankers needed for exports to Asia, while Ukrainian drone attacks continue to damage key refineries.

Last month, the U.S. imposed sanctions targeting 180 Russian tankers, coinciding with an escalation in Ukrainian drone strikes aimed at strengthening Kyiv’s bargaining position. These developments come amid growing expectations that U.S. President Donald Trump will pressure Russian President Vladimir Putin to negotiate an end to the war in Ukraine. Trump has indicated that ending the conflict is a top priority, with the potential for additional sanctions if progress is not made.

According to three Russian oil executives who spoke anonymously to Reuters, Russia will likely have no choice but to curb oil output. A combination of falling exports, reduced refining capacity, and limited storage — some of which has been targeted by Ukrainian drones — has created a crude glut that can only be managed through production cuts.

Russian oil production could fall below 9 million barrels per day (bpd) in the coming months, with deeper cuts possible if tanker shortages and refining outages persist. Already, crude exports from Russia's key western ports — Primorsk, Ust-Luga, and Novorossiisk — fell by 17% year-on-year in January.

• Sanctions and the Shadow Fleet

In response to sanctions, Russia has relied heavily on a “shadow fleet” of tankers operating without Western insurance or services. However, recent U.S. measures have significantly impacted this fleet, with transport costs from Russia’s Pacific port of Kozmino to China increasing fivefold in January.  Traders report that sanctions have effectively barred a fifth of Russia’s shadow fleet from Chinese and Indian ports. Consequently, Russian companies have resorted to storing 17 million barrels of crude aboard tankers, a figure that could rise to 50 million barrels by mid-2025, according to Goldman Sachs.

Russia has attempted to mitigate the impact of sanctions by diversifying its tanker fleet, recently purchasing at least 12 smaller Aframax tankers. This move has driven up the cost of these vessels, with prices doubling from last year. Despite these efforts, shipping costs to key markets like China have surged, further squeezing Russia’s oil revenues. Analysts suggest that while Russia will eventually find alternative shipping solutions, the immediate financial strain is significant.

Another pressure point comes from Ukrainian drone attacks that have disrupted Russia's refining sector, targeting eight major refineries since January. This has led to the shutdown of key facilities such as the Ryazan, Volgograd, and Astrakhan refineries, with an estimated 10% of Russia’s refining capacity offline. Repair timelines are uncertain, with some facilities expected to be out of operation for months.

Looking at the big picture, Russia’s economy is feeling the pinch. The country’s oil revenues, which totaled $192 billion in 2024, are critical to a federal budget that has run a deficit exceeding $100 billion since Russia invaded Ukraine in February 2022. While Russia has proven resilient against previous sanctions, the cumulative effects of financial restrictions, logistical hurdles, and military conflict are mounting. As one Russian oil executive put it, “The complexity involved in refining and selling oil is becoming overwhelming. Everyone is waiting for this war to be over.”