KEY POINTS
- U.S. sanctions could disrupt Russian oil supply chains significantly.
- Brent crude prices have risen 8 percent since early January.
- Global oil demand growth slows, with a 1.05 million bpd forecast for 2025.
The International Energy Agency (IEA) has cautioned that the latest U.S. sanctions targeting Russia could cause significant disruptions to global oil supply chains.
This development has raised concerns about tighter crude and product balances, although the IEA has chosen to maintain its current supply forecasts for Russia and Iran until the full impact of the sanctions becomes clearer.
According to the IEA’s January report, these sanctions target entities responsible for over a third of Russian and Iranian crude exports in 2024.
Despite these measures, the global oil market is projected to remain in surplus throughout 2025, thanks to increased supply from non-OPEC+ producers.
Crude prices rise as sanctions stir concerns
These sanctions have started affecting the market, with the international reference benchmark, Brent crude, averaging at around $81 per barrel – 8 percent increase since the start of the year.
The IEA noted that a previous round of sanctions on Russian resulted in a far less impact on oil supply than was anticipated.
According to Reuters, in 2022, the agency predicted a loss of 3 million barrels per day of Russian supply, but actual figures fell short of that projection.
The IEA has now adjusted its approach, focusing on observing the evolving market dynamics before making further revisions to its forecasts.
Demand growth slows amid supply optimism
The report also noted a slowdown in global oil demand growth for 2025, estimating an increase of 1.05 million barrels per day (bpd), down from the previously forecasted 1.1 million bpd.
In contrast, OPEC’s latest report projects higher demand growth of 1.45 million bpd for 2025.
China, once a major driver of rising oil consumption, is now experiencing slower growth due to economic challenges and a shift towards electric vehicles, further tempering global demand expectations.
New sanctions could tighten oil market balances
The U.S. sanctions package targets over 160 tankers that handled approximately 22 percent of Russian seaborne oil exports in 2024.
The Biden administration launched these steps to cut Russia’s oil and gas income, and provide Ukraine with support during escalating tensions.
The IEA believes that the sanctions will leave the market undersupplied; however, a rising supply from other non-OEDC+ countries may balance the situation on supply demand side.
